Should I amend 2020 tax return before filing 2021?

[rjs]

You do not have to file your 2020 amended return, or wait for it to be processed, before you file your 2021 tax return. However, if the change in your 2020 return will affect your 2021 tax return in some way, such as changing a carryover amount, you should at least prepare the amended 2020 return first, so that you have the correct information for your 2021 return.

[usergardiner-glenn]

Thank you,

Yes unfortunately it will affect a carryover. I mistakenly overstated a business expense.

I had a tax overpayment from 2020 that was applied to 2021 estimated taxes.

So I’ll prepare the 2020 amended before I file 2021.

Glenn

[rjs]

This is a tricky situation, and might be a little hard to understand. But everything's okay. The amount of your 2020 overpayment that you applied to your 2021 estimated tax is not really a carryover. The amendment to your 2020 tax return will not actually affect your 2021 tax return.

The full amount that you applied to your 2021 estimated tax will remain applied to 2021, and your 2021 tax return should show the full amount that you originally applied. You will have to pay back the difference as an amount owed on your 2020 amended return. The amount you will have to pay with the amended return will be the difference between the overpayment shown on your original 2020 tax return and how much the overpayment would have been if you had not overstated the business expense. The amended return takes into account the overpayment on the original return. It does not take into account the amount that was applied to the following year.

So the answer to your original question remains the same. You do not have to file the 2020 amended return before you file your 2021 tax return. Some time after your amended return has been processed, you might get a bill from the IRS for interest on the amount you had to pay back.

[rjs]

Here's another, simpler way of looking at it. It's the same as if you had not applied the 2020 overpayment to 2021 estimated tax. It's as if you got a refund of the 2020 overpayment, and wrote a check for a 2021 estimated tax payment. The 2021 estimated tax that you paid doesn't change. When you file the 2020 amended return, you have to pay back the excess refund that you got.

[usergardiner-glenn]

Thank you for the response and thorough explanation.

2020 amended & paying back excess refund (and any potential interest, fees, etc.) sets 2020 straight.

2021 return stands as is, with full (excess) 2020 refund applied to 2021 Q1 estimated taxes.

Thanks again for the assistance,

Glenn