Is It Better to Do Taxes Early or Later?
Understand how your chosen tax filing timing affects your financial situation and the best approach for you.
Many individuals consider the best time to submit their income tax returns. Filing early or closer to the April deadline depends on specific circumstances, including income sources, deductions, and whether a refund or amount owed is anticipated.
Accessing Necessary Documents
Filing an accurate tax return begins with gathering all required tax documents. These forms report income, deductions, and credits. Common documents include Form W-2 for wages, various Forms 1099 (e.g., 1099-NEC, 1099-INT, 1099-DIV), and Schedule K-1 for partnership or S corporation income. Additional records might encompass statements for mortgage interest (Form 1098), student loan interest, and charitable contributions or medical expenses if itemizing.
Many of these documents are issued by employers and financial institutions throughout January and February. Their staggered arrival often dictates the earliest practical filing date. Attempting to file without all pertinent information can result in an inaccurate return, potentially necessitating an amendment and delaying processing.
Understanding Outcomes of Early Filing
Filing a tax return early offers several benefits. Early filing often leads to receiving tax refunds sooner. The Internal Revenue Service (IRS) processes returns on a first-in, first-out basis for quicker refunds. This prompt access to funds can be financially advantageous, allowing use of funds for savings, investments, or debt reduction.
Filing early also provides an opportunity to identify and correct errors. With ample time before the deadline, taxpayers can thoroughly review information, consult with a tax professional if needed, and make necessary adjustments without pressure. This approach reduces stress and minimizes penalties for mistakes. Early filing offers protection against tax-related identity theft, as a legitimate return prevents a fraudulent one from being processed in a taxpayer’s name.
Understanding Outcomes of Later Filing
Filing a tax return closer to the deadline also presents distinct outcomes. Waiting allows more time for all necessary tax documents to arrive, beneficial for complex financial situations with multiple income streams or investment accounts. This ensures all relevant data is included, reducing the chance of needing to file an amended return due to missing information.
Filing closer to the deadline provides an extended period to make certain tax-advantaged contributions for the current tax year. For instance, contributions to Individual Retirement Arrangements (IRAs) or Health Savings Accounts (HSAs) can be made until the tax filing deadline and apply to the previous tax year, potentially reducing taxable income. This allows for strategic financial planning. For those owing taxes, filing later means holding onto funds longer, managing cash flow until the April payment deadline. The tax payment is still due by the original deadline, regardless of when the return is submitted. This provides flexibility, but also carries potential for increased stress and less time for error correction if issues arise.
What to Do If You Need More Time
If an individual cannot submit their tax return by the April deadline, they can request an extension. An extension is obtained by filing IRS Form 4868, “Application for Automatic Extension of Time to File.” This form grants an automatic six-month extension to file the return, typically pushing the deadline to October 15.
An extension to file is not an extension to pay any taxes owed. Estimated tax liability must still be paid by the original April deadline to avoid penalties and interest. Taxpayers can submit Form 4868 electronically through tax software or the IRS website, or by mail. Making an electronic payment of estimated tax due and indicating it’s for an extension can automatically trigger the extension without filing Form 4868 separately.