My wife has/had an out of home sales business. While working on our 2017 filing I discovered I used the wrong number on our year end inventory for 2016. About $4k more than it should have been, mainly due to an error in my excel spreadsheet. During 2017, she sold it all off and closed the business. Most of what she sold off was barely over cost. So with a 2017 YEI amount of zero, it looks like we had a huge loss this year, when we did just a bit better than break even (I know last years "profit" would have been lower, so does it matter?). Should I go back and update 2016, or do I just update my starting year inventory and apply an explanation. I really want to just be done with this stupid business. I am guessing I will get some money back from 2016 if I go back and update it, maybe, but I really don't want to get audited. Any advice is appreciated. To add, in some cases sales and inventory was poorly tracked. I have done everything I can to make all the records and amounts as accurate as I can make them, but dread someone else trying to look at them and audit.
You really should amend 2016 to correctly reflect the ending inventory and to accurately report the gains and losses on the business.
The returns would then both be correctly filed.
One issue while unlikely could happen, say IRS (or State) looked at 2017 and corrected the return (reduced loss by $4K) and say when they did it the statue of limitations (three years for due date of return) had already expired on the 2016 return, you would be paying taxes on 2017 and not getting the benefit of the larger loss on 2016.
Many, many amended returns are filed each year, so don't let the amended return process worry you about an audit.
So, do I amend my 2016 return and send it, and complete my 2017 and send it at the same time? Or do I need to wait for 2016 to be accepted first? If I do amend 2016, it will return some money. Do I then list that changed value for 2017 and my federal/state returns, or do I file 2017 with the original values and then amend 2017 once my 2016 is accepted?