Should I Wait to File Taxes or Is It Better to File Early?

Each year, taxpayers decide when to file their federal income tax returns. The filing window opens in late January and closes on the tax deadline, typically April 15th. The choice to file immediately or wait until closer to the deadline depends on your financial situation, such as whether you expect a refund or owe money to the IRS.

Reasons to File Taxes Early

A primary reason to file early is to receive a tax refund sooner. The IRS processes returns as they are received, so submitting your return at the beginning of tax season places you earlier in the queue. The fastest way to get a refund is to file electronically and choose direct deposit, which is much quicker than mailing a paper return and waiting for a check.

Filing early is a defense against tax-related identity theft. This fraud occurs when a criminal uses a stolen Social Security number to file a fraudulent return and claim a refund in your name. Once the IRS accepts a return with your Social Security number, it will reject any subsequent filings. Filing first effectively locks your account for the tax year.

Completing your taxes early also facilitates other financial activities. Lenders for home mortgages and other large loans often require your most recent tax return. Students applying for federal financial aid through the FAFSA also need information from a completed return, and having it done prevents delays.

Reasons to Delay Filing Taxes

A strategic reason for waiting to file is to have more time to pay a tax bill. The filing deadline is also the payment deadline. If you owe the IRS, delaying your filing until closer to April 15th allows you to hold onto your funds for a longer period. As long as you file and pay the full amount by the deadline, you will not incur any interest or penalties.

Waiting to file can also ensure your return is accurate and complete. Some tax documents, like Form 1099-B or a Schedule K-1, may not arrive until late January or February. Filing before you receive all necessary documents, including corrected forms, could force you to file an amended return with Form 1040-X, which adds complexity.

Delaying your filing provides additional time to organize your financial records and review them for all possible tax benefits. This extra time can be used to gather receipts, analyze expenses, and identify every deduction and credit for which you are eligible. A careful review might uncover opportunities to lower your tax liability that could be missed in a rush.

Consequences of Filing After the Deadline

Failing to file by the deadline without an extension can lead to penalties. The failure-to-file penalty is 5% of the unpaid tax for each month a return is late, up to 25%. For returns due in 2025, if you file more than 60 days late, a minimum penalty of $510 or 100% of the tax owed, whichever is less, applies.

The failure-to-pay penalty is 0.5% of the unpaid taxes for each month the tax is not paid, also capped at 25%. If both penalties apply in the same month, the total penalty is 5%. While the failure-to-file penalty stops after it reaches its 25% cap, the failure-to-pay penalty continues until the tax is paid, leading to a potential combined maximum penalty of 47.5% of the unpaid tax.

In addition to penalties, the IRS charges interest on underpayments. Interest applies to any unpaid tax from the due date until it is paid in full and can also be charged on the penalties themselves. The interest rate is set quarterly and can change during the year.

Requesting a Tax Filing Extension

An extension of time to file your tax return is not an extension of time to pay any tax you may owe. The extension provides an automatic six-month period to submit your return, typically moving the filing deadline from April 15th to October 15th. However, your estimated tax liability is still due by the original April deadline.

To request an extension, you must file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by the original tax deadline. You can file this form electronically through tax software or a tax professional, or you can mail a paper version to the IRS.

When you file for an extension, you are required to estimate your total tax liability for the year and pay any amount you expect to owe by the original April due date. Making this payment is necessary to avoid the failure-to-pay penalty. If you properly estimate and pay your tax liability by the deadline, you will not be penalized for paying late, even though you will be filing your actual return months later.