Why It Pays To File Your Taxes Early
Tax season generally leads to a collective groan across the country. From knowing when to itemize your tax returns to figuring out which schedule to use, filing taxes can be a confusing and downright frustrating process. It's no wonder that, according to a 2022 analysis report from IPX 1031, 32% of Americans wait until the last minute to file their taxes. Kicking the can down the road can feel like a good option; however, it can not only lead to additional stress but also a higher chance of potential tax mistakes that could end up costing you. While it might sound simple enough that filing your tax return early in the tax season has benefits, there are some unexpected perks as well that could make you think twice about filing early.
A big perk of filing taxes early is that, if you are expecting a refund, you can get your money faster. On the flip side, if you owe money, then filing your return early can give you more time to figure out your financials. Since your owed taxes aren't actually due until the filing deadline in April, you could give yourself some extra time to come up with the required money and/or file necessary paperwork for payment options. This can be especially helpful if you're anticipating a larger bill this year and/or aren't sure how much you will end up owing ahead of time. Remember, the IRS charges interest and penalties on outstanding tax debt so ensuring you can pay any tax liability on time can be the key to saving you money long term.
How filing early can help you
The IRS usually starts accepting tax returns in late January (for example, for 2024, the start of tax season is January 29), meaning that filing anytime from then through March would qualify as filing early. However, it's important to know that the actual deadline for businesses and employers to issue W-2 and 1099 forms to employees and contractors isn't until January 31. If your employer chooses to wait until the deadline to issue your required tax forms, you may have to wait to file your tax return until after you receive them.
Perhaps the greatest advantage of filing early is the extra cushion of time it gives you in case of a mistake on your return. Some of the most common — and seemingly minor — tax mistakes can lead to massive headaches, delays, and even potential fines if the IRS doesn't accept your return due to errors. Perhaps the biggest mistake you can make is simply forgetting to sign your tax return. Other common mistakes can include math errors, especially on tax returns done by hand (as opposed to using online tax software), and incorrectly written Social Security numbers.
Depending on the method of your filing and just how last-minute you end up filing your tax return, you also might not find out about your mistake(s) until after the filing deadline has passed. Since the IRS won't accept tax returns that are considered invalid (for instance, returns that aren't signed) you run the risk of essentially not filing on time, and this can come with late fees and penalties.
Other tax-filing considerations
If you're looking to make any large financial purchases this year — like, say, buying a new house — then waiting until the last minute to file your income taxes could mean you won't have all necessary financial documentation you'll need. This can delay the process and potentially cause you to miss out on your dream house. Similarly, financial aid for college uses tax returns to determine eligibility and financial need. If you or a family member are looking to attend college later in the year, then having your financial information ready to go early can give you more time to decide between potential schools and financial aid options before the May 1 commitment cutoff at most universities.
If, for any reason, you are concerned you won't be able to file your taxes on time, it is important to file an extension. According to the IRS, at least one in 10 taxpayers file for an extension every year (via The Wall Street Journal), but that number appears to be growing. In 2022, for example, the IRS reported that a record-breaking nearly 19 million people had requested the six-month filing reprieve on their 2021 returns, which works out to about one in eight. This said, while tax extensions can be helpful in cases of extenuating circumstances or even if you simply forgot, they shouldn't be used as a regular need. Remember that a tax extension isn't the same thing as an extension on paying owed taxes.