What Happens If I File My Taxes Early?
Many taxpayers procrastinate their taxes each year, causing unnecessary stress and last-minute scrambling to meet deadlines. On the other hand, others often choose to file particularly early.
There are many benefits of getting a head start on your taxes, but there are also some downfalls to consider before jumping in too soon. Here’s a brief overview of the pros and cons of filing your taxes early.
Pros of filing taxes early
Like to get ahead? Consider filing your taxes early to enjoy these benefits:
1. You’ll eliminate your tax deadline stress.
If you’re the kind of person who hates looming deadlines, filing early is a good way to go. Planning to file your taxes in late January or February means you can take your time and do a thorough double- and triple-check on your tax return, without worrying about cutting it too close to the April 15 filing deadline. Filing early also means that if you spot an error on your return or need to make an amendment after filing, you’ll have plenty of time to address it.
2. You’ll get your refund sooner (and protect it from would-be identity thieves).
If the IRS owes you money, you’ll probably want it in your bank account as soon as possible. Since the IRS typically issues refunds in less than 21 calendar days after processing a tax return, it makes sense to file as early as you can to get your refund faster.
The other advantage of filing early is that you reduce the likelihood of someone successfully filing a fraudulent return using your name and Social Security number and claiming your refund. Once the IRS receives and processes a taxpayer’s return, they’ll reject any additional returns using the same Social Security number — which means if someone filed a false return in your name while you procrastinated, it could take months to resolve the fraud and get your refund from the IRS.
3. You’ll have more time to prepare for your tax bill.
If you think (or know) you’ll owe the IRS money, filing early means you’ll have some extra time to save up and make a plan for paying off your tax bill. This can be especially helpful if your tax bill comes as a surprise and you weren’t expecting to owe the IRS.
4. Tax professionals may be more available to work with you.
During the first quarter of the year, tax professionals and accounting firms get busier and busier the closer it gets to April 15. Working with a professional to file your taxes early means it’s more likely that they’ll be available on your schedule, instead of trying to slot you in between other clients who waited until the last minute.
Cons of filing taxes early
Of course, rushing the tax filing process can be just as detrimental as procrastinating until the last minute. Here are a few reasons to consider waiting a few weeks (or a month or two) before filing your return:
1. You might be filing before receiving all proper forms.
If you’re a corporate employee, your employer is legally required to send you a W-3 tax form summarizing your earned wages and taxes withheld. If you’re self-employed or have interest-bearing accounts, you’ll also likely be receiving a handful of 1099 tax forms from your clients or financial institutions.
The deadline for issuers to file and send out your copy of these tax forms is January 31, which means you should not file your tax return until you’ve received all of them. Even if you’re certain of the amounts you earned, it’s best to double-check your numbers against the official forms that were filed with the government.
2. There’s an increased likelihood of making mistakes when in a hurry.
Your tax return isn’t something you should rush through just to get your refund, no matter how much you might need the money. If you’re filing early for the sake of an early refund, you’re more likely to miss some of the smaller details when you file, especially if you’re using a DIY tax return software instead of working with a professional.
3. You may increase your audit risk if you have to amend your return.
Mistakes happen, and the IRS understands that you might need to make a correction or two after you’ve officially filed your return. You can amend yours to fix any errors, but keep in mind that amended returns are more likely to be audited.
4. You might owe more interest and penalties.
If you do amend your tax return and end up owing more to the IRS than you originally paid when you filed, you’ll be subject to additional interest on the balance and may even have to pay a penalty.
Need tax help? Call Miller and Company
If you’re not sure how to approach your taxes this year, don’t try to go it alone. The trusted CPAs at Miller and Company LLP can help you figure out the best strategy and timing for filing your 2020 tax return and making the most of your potential deductions. Contact us today for a free consultation.