By Edward “Ed” V. O’Neal, Senior Vice President and Manager, Retirement Plans
Now that the merriment and festivities of the holiday season have concluded, it’s time to turn our attention to what has become a dreaded chore for many: Tax Season! That realization became painfully clear to me when I received notification from my employer recently that my W-2 for the 2024 tax year was now available.
For many, the stress and dread of tax season includes not only the challenge of correctly applying the tax code, but also determining the right time to file taxes. Like many decisions that we fret about, there is no universal answer to the best time to file taxes, and ultimately each taxpayer’s individual circumstances will determine the best option for their unique situation. Here are a few items to consider in determining the optimal time for filing taxes:
Advantages of Filing Early
- There could be a benefit to filing early for taxpayers expecting a refund, as filing early could lead to quicker refund processing with the IRS. Taxpayers expecting a refund should think of their refund as excess payments made to the IRS throughout the year that are now being returned. Receiving that refund as soon as possible seems to make financial sense. NOTE: filing electronically and opting to receive the tax refund by direct deposit can expedite your refund even more.
- There could also be a benefit to filing early for taxpayers that anticipate owing money to the IRS. Although it can be disappointing to finalize a tax return and uncover a large balance due to the IRS, filing early may provide additional time to fully understand the tax liability and make arrangement for payment.
- Filing your tax return as soon as possible is one of the best ways to guard against tax-related identity theft. Filing early can lessen the time and opportunity for an identify thief to fraudulently file for you—and potentially steal your refund!
- One of the biggest benefits of filing early might be the reduction in stress and the peace of mind of just completing that task. Additionally, filing early provides for a better opportunity to secure quality tax services (if needed), avoids scrambling at the last minute with piles of paperwork, and allows time to ensure that the return is accurate. Having early knowledge of the tax liability or refund status can also help with budgeting and setting financial goals for the upcoming year.
Why it might be beneficial to file later
- You don’t have all your tax information (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 (i.e., 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. Ultimately, the timing of an individual’s tax filing will depend on their personal financial situation and level of comfort. Regardless of the timing decision of the filing, staying informed and being mindful of options will help ensure taxpayers are making the best choice for their financial health. 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.