Tax season brings with it a number of key decisions for taxpayers, so it’s important to be aware of important tax deductions and key tax credits. But perhaps one of the most important considerations is determining the optimal time to file taxes. In other words, should I file my taxes early or wait until the deadline? As with many important questions in life, the answer is a resounding “it depends.”
There is no simple answer to this question as it depends on each person’s unique tax circumstances, and perhaps even personality traits may factor in as well. Are you the type of person that likes to get things done ahead of time? Or do you prefer to push off unpleasant tasks until the last possible moment?
When contemplating this question, there are several key factors to consider. For instance, filing early is a great idea for individuals who have collected all their tax forms and anticipate a refund. Taxpayers expecting a refund should remember that the refund is actually an excess payment made to the IRS over the past year, so getting the money returned to you as soon as possible makes financial sense. Additionally, filing early typically results in faster processing times for the refund.
Filing early could also be advantageous if:
- You owe money to the IRS, as it may give you additional time to fully understand your tax liability and arrange for payment. Payments do not have to be made until April 18 (the tax filing deadline for most taxpayers), even if you file your tax return early.
- You are anticipating a big life changing event – such as purchasing a home or attending college – to help you obtain key required information for these events in a timely manner.
- You are concerned about identity theft, as filing early can lessen the time and opportunity for an identify thief to fraudulently file for you – and potentially steal your refund!
- You’ll eliminate any tax deadline stress, since filing early allows more time to review and ensure that your return is accurate, limiting the possibility of errors that might result in troublesome amendments to the filing.
- You don’t have all your tax information (e.g., 1099s, schedule K-1s, etc.). For example, if you own mutual funds in a taxable investment account, it is not uncommon for 1099s to arrive in mid to late February. An incomplete or inaccurate tax return could result in needing to file an amended tax return, and amended returns have been known to invite IRS audits.
- You need additional time to use tax advantaged strategies, such as making tax-deductible IRA contributions for the previous calendar year (if you’re eligible).