The initial few months of the year can be stressful, with many folks trying to recover from overindulgence during the holidays or trying to adhere to new resolutions they’ve committed to. And adding to that stress for many this time of the year is the start of tax season. The challenge for most taxpayers is comprehending and correctly applying the tax code, along with the key determination of the optimal time to file taxes. In other words, should I file my taxes early or wait? Like many important decisions, there are pros and cons to both options, and the best choice will depend on each individual taxpayer’s unique circumstances.
Many key decisions in life come down to timing, and with the IRS accepting and processing returns as early as January 29, 2024 for this tax year, taxpayers will need to carefully analyze the best timing for filing their taxes. Here are a few considerations to ponder:
Potential benefits for filing early
- You anticipate a refund. Taxpayers expecting a refund should think of that refund as excess payments made to the IRS throughout the year that are simply now being returned. Receiving that refund as soon as possible makes financial sense. NOTE: filing electronically and opting to receive the tax refund by direct deposit can expedite your refund even more.
- You owe money to the IRS. Filing early may give you additional time to fully understand your tax liability and arrange for payment. Payments do not have to be made until the actual tax filing date (even if you file your tax return early).
- You are anticipating a big life-changing event (such as purchasing a home or attending college). Filing early will be helpful in obtaining key information needed for college financial aid or home purchase approvals in a timely manner.
- You are concerned about identity theft. 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 angst associated with tax deadline stress. Filing early provides for a better opportunity to secure needed quality tax services, often at more favorable pricing, and allows time to ensure that your return is accurate. This will help reduce the possibility of errors that could result in pesky amendments and updates to your filing.
Why it might be beneficial to file later
- You don’t have all your tax information (e.g., 1099s, schedule K-1s, etc.). For example, with certain types of investment products, it is common for 1099s to arrive in mid- or late-February. An incomplete or inaccurate tax return could result in unwanted amendments to the tax return. Amended returns have also historically been a target for IRS audits.
- You need additional time to use tax-advantaged strategies, such as making tax-deductible IRA contributions for the tax year (if eligible) or establishing an employer retirement plan (e.g., SEP IRA) if the taxpayer is filing as a business owner.
It’s important to carefully consider the tax and financial implications before making any tax filing decision. Given some of the recent retirement legislation, including SECURE 2.0, taxpayers will need to be mindful of their unique circumstances in determining the optimal time for filing; be sure to consult with your tax advisor before making any final decision.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.