When Should You File an Amended Return

Say you inadvertently forgot to include income from a 1099 in your return. Should you wait for a notice from the IRS or should you just go ahead and file an amended return? What should you do about the state return? Know that eventually the IRS will see that the 1099 was not included and send you a notice probably two years down the road. They will also share this info with your state. If you are going to owe more than $5,000 or 10% of the correct tax with the addition of the income from the 1099, then you should file an amended federal and state return since the IRS could charge you an accuracy related penalty of 20% of any underpayment if you wait for them to find the error. Under those amounts you may want to wait for the notice and pay from that, but you will still owe interest (4%) and late payment penalties(.5% on unpaid balance per month up to 25% max).