Should I Wait to File Taxes? Top Pros and Cons

With the IRS 2024 tax filing season kicking off on January 29, taxpayers find themselves facing the annual dilemma: should I wait to file taxes? The IRS aims to enhance customer service experiences, with improvements targeting apps like its “Where’s My Refund?” service, indicating an effort to streamline the process for taxpayers nationwide. Amid these updates, over half of Americans are considering getting ahead by filing their taxes early this year, a strategy that could impact everything from tax refunds to financial planning.

Deciding on the timing of tax filing is crucial, especially as early filing can influence one’s financial situation, including access to tax refunds, tax credits, and the management of personal finance. It’s essential to weigh the benefits and potential drawbacks carefully, as actions such as electronic filing and opting for direct deposit can expedite refunds, whereas delays could affect everything from financial aid to dealing with the IRS directly. This article explores the pros and cons of filing taxes early, aiming to provide readers with the necessary insight to make an informed decision on when to submit their tax returns to the IRS.

Benefits of Filing Taxes Early

Filing taxes early offers several advantages that can significantly impact one’s financial health and peace of mind. Here are some key benefits:

1. Quick Refunds: Filing early, especially through e-filing and choosing direct deposit, accelerates the refund process. The IRS typically issues refunds within 21 days for most taxpayers who file electronically, allowing individuals to access their funds sooner.
2. Preparation for Major Financial Decisions: Early tax preparation provides critical financial information, assisting with significant life events such as buying a house or planning for education. It also gives a head start on planning contributions to tax-advantaged plans, helping taxpayers make informed decisions about their financial future.
3. Protection Against Identity Theft and Reduced Stress:
   • Filing taxes early can safeguard against tax return identity theft, a scenario where fraudsters file a return in your name to claim your refund. The best defense is to file as soon as possible after receiving all the necessary documents.
   • Starting the tax process early can alleviate stress by avoiding the rush and potential errors associated with last-minute filings. It also offers additional time to gather any missing documents, ensuring a smoother and more accurate return.

Potential Drawbacks of Early Filing

While early tax filing has its merits, it’s crucial to consider potential drawbacks that might affect your financial situation and peace of mind.

• Incomplete or Missing Documents: Filing before having all necessary documents, such as W-2s and 1099s, might lead to inaccuracies in your return. This could delay refunds or prompt IRS audits, making it essential to wait until you have all the required information.
  • Risk of Errors: The rush to file early can result in overlooked deductions and incorrect data entries, potentially impacting your tax bill and refund amount.
  • Identity Theft: Early filers may inadvertently expose themselves to a higher risk of tax-related identity theft, where fraudsters file a fraudulent tax return using your Social Security number to claim your refund ¹¹.
• Tax Law Changes: Filing before understanding recent updates could mean missing out on new benefits or failing to comply with changes, affecting your tax situation. It’s wise to stay informed about tax code adjustments that could impact your return.

Considering these factors, it’s advisable to balance the desire for a quick refund with the need for a thorough and accurate return. Waiting for all necessary documents and reviewing tax law changes can ultimately safeguard against errors and fraud, ensuring a smoother tax season.

Navigating Common Mistakes

To navigate common mistakes during tax filing, consider the following guidelines:

1. Organizational Practices:
   • Keep tax records organized to simplify the preparation of a complete and accurate tax return.
   • If using an Individual Taxpayer Identification Number (ITIN), ensure it’s renewed if it’s expired.
2. Accuracy Checks:
   • Double-check for typos and mathematical errors on the tax return.
   • Ensure the name, Social Security Number (SSN), and filing status are correct.
   • Input financial information exactly as it appears on the W-2, 1099, and K-1 forms.
   • Use the correct lines for each item on tax forms, and choose between the standard deduction and itemizing wisely.
   • Claim all eligible deductions and credits accurately, and verify direct deposit details.
3. Procedural Compliance:
   • Both spouses must sign joint returns; use digital signatures for electronic filing.
   • File only after receiving all necessary tax documents.
   • Match names and SSNs on the tax return with those on the Social Security card.
   • Utilize the Interactive Tax Assistant on IRS.gov to determine the correct filing status.
   • Review calculations to avoid simple or complex mathematical errors.
   • Specify the preferred method for receiving a refund or making tax payments accurately.

Adhering to these steps can significantly reduce the likelihood of errors and ensure a smoother tax-filing experience.

Impact on Financial Planning

Understanding the impact of tax decisions on financial planning is crucial for optimizing one’s financial health. Here are key considerations:

1. Tax Deductions and Credits:
   • The standard deduction amount has increased for all filers for the 2023 tax year, potentially lowering taxable income for many taxpayers.
   • The maximum additional child tax credit amount has risen to $1,600 for each qualifying child, providing significant relief for families.
   • New tax credits, like the Clean Vehicle Credit, offer opportunities to reduce tax liability through environmentally conscious purchases.
2. Legislative Changes and Planning:
   • With the IRS monitoring legislation affecting the Child Tax Credit, staying informed enables taxpayers to anticipate changes and adjust their financial planning accordingly.
   • The delay in the new $600 reporting threshold for tax year 2023 on Form 1099-K may affect how freelance and gig economy income is reported, impacting tax planning strategies.
3. Strategic Financial Decisions:
   • Preparing tax returns early can give taxpayers extra time to save money to pay taxes if they owe, allowing for better financial management and the avoidance of penalties.
   • Understanding the implications of tax law changes, such as the adjusted tax brackets for inflation, is essential for making informed decisions about income, investments, and retirement planning.

Choosing the Right Time to File

Choosing the right time to file your taxes requires a balance between early preparation and ensuring all information is accurate and complete. Here are key considerations to help taxpayers decide:

• Deadlines and Extensions: The standard deadline for filing Form 1040 or 1040-SR for the 2023 tax year is April 15, 2024. Residents of Maine or Massachusetts have until April 17, 2024, due to state-specific holidays. If additional time is needed, taxpayers can request an extension, pushing the deadline to October 15, 2024. However, it’s crucial to note that an extension to file is not an extension to pay any taxes owed.
• Tools and programs:
  • Creating an IRS Online Account offers secure access to personal federal tax information and can be a valuable tool for managing tax documents and deadlines.
  • The Direct File pilot program, available in March for taxpayers in 12 states with simple tax situations, provides a free online filing option, making it easier for early filers to submit their returns.
• Strategic Filing Times:
  • For those looking to minimize costs, filing before March 15 is advisable, as tax software prices tend to be lower.
  • To avoid late penalties, ensure filing by the April 15 deadline. Late filings can incur a penalty of up to 5% of the owed amount for each month or part of a month the return is late.

By considering these factors, taxpayers can make an informed decision on the best time to file, balancing the benefits of early filing against the need for complete and accurate tax documents.

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Conclusion

Understanding the complexities of the tax world—from the right timing to file, leveraging tax credits, navigating tax laws, and ensuring the accuracy of your federal tax return—can significantly influence one’s financial health and peace of mind. The decision to file taxes early or wait hinges on a myriad of factors, including preparedness with tax documents, awareness of tax law changes, and personal financial situations. Early filers, equipped with a complete set of tax forms and a clear understanding of their tax situation, stand to gain from quicker tax refunds and reduced stress. However, the wisdom in waiting—for gathering all pertinent information or for late tax law clarifications—cannot be overstated, as it shields taxpayers from potential errors and audits, ensuring a more accurate return.

As we navigate this tax season and consider the pros and cons of early tax filing versus waiting for the last minute, it’s imperative to stay informed and seek a tax professional for advice to avoid common pitfalls and optimize financial outcomes. Whether you’re an early bird getting a head start on your tax preparations or someone who takes additional time to ensure every detail is correct, remember that accuracy, thoroughness, and compliance with the IRS guidelines are paramount. For those looking for a partner in navigating the complexities of tax filing, consider exploring options that align with your unique circumstances and can offer tailor-made solutions, ensuring you not only meet tax deadlines but also maximize your financial benefits.

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FAQs

Q: Is it better to file my taxes early, or should I delay the process?A: Filing your taxes early is often advantageous because it can lead to receiving your tax refund more promptly, especially if you e-file. Additionally, if you owe taxes, filing early provides you with extra time to organize your finances before the payment is due, though the actual payment isn’t required until the tax deadline.

Q: Are there any advantages to postponing my tax filing?A: Around one-third of American taxpayers tend to file their taxes just before the deadline. By waiting, you reduce the likelihood of needing to amend your return due to receiving additional tax documents or making errors. Filing closer to the deadline allows you more time to gather all necessary tax documents.

Q: Should I delay filing my taxes until after the Senate votes on tax-related issues?Personal finance expert Robert Farrington suggests that taxpayers should not postpone filing their taxes in anticipation of congressional actions. He recommends filing as soon as you have all the necessary information, rather than waiting for potential legislative changes.

Q: In the year 2024, should I consider waiting to file my taxes?A: If you owe taxes and file late, you may incur a penalty. Conversely, if you are expecting a refund or do not owe taxes, there might not be a penalty for filing late. However, it is generally recommended to file as soon as possible to either receive your refund swiftly or confirm that you do not owe a balance.