Why you should file your taxes as early as possible
The IRS this week started accepting tax returns for the 2019 tax year. So when should you file your taxes? As early as possible, most accountants say.
There are good reasons to submit your return as soon as you've gotten all the necessary documents: You'll get any refund faster, you'll know if you owe money, and you'll enjoy having a year's worth of paperwork over and done with before tax season really gets going. But filing early isn't possible for everyone. Those with complex investments might find themselves waiting until March, or later, to get the forms they need to do their taxes, for example.
Here's how to file your tax return early — as well as when it pays to wait.
Expecting a refund?
If you're among the two-thirds of U.S. taxpayers who expect a refund this year, it's best to file as soon as possible. The earlier you file, the sooner you'll get any money due you, accountants say.
"If you're a wage earner and you don't have a lot of investments, I'd say get in as early as you can — late January," said Joel Grandon, an Iowa accountant and president of the National Society of Accountants.
By January 31, employers are required to send out W-2 forms telling their workers what they earned last year; by mid-February, 1099 forms covering everything from freelancer payments to investment income are made available. For most people, getting those forms means you can file for your return.
Last year, 72% of filers got a refund, with the average refund just under $2,870. (Note that if you're claiming the Earned Income Tax Credit, as 25 million lower-income Americans did last year, the government is required by law to hold your refund until February 15, no matter how early you filed.)
Even if you don't need to spend your refund, you can invest it or stash it in a savings account. While the interest it earns will be low, that's a better option than the zero percent the government offers for holding your refund from February until April.
Using a new tax preparer
If you plan to consult a tax professional, you're likely to get more of their time and attention in the first week of January than if you wait until April, when clients are piling up in the annual dash before tax day.
"If you think you're going to switch or use a preparer for the first time, January is a good time to make that initial call," Grandon said.
And the earlier you see your preparer, the faster they'll typically be able to do your taxes. Waiting just one week can make a huge difference. For Grandon, the onslaught start around February 8 or 10. "I might go from having 50 or 60 returns to work on to 3,000 in a matter of weeks. It's like a traffic jam," he said.
Concerned about security
Filing early gets you more than financial benefits — it can also help guard against identity theft.
Every year, the IRS rejects some electronically filed returns, with taxpayers receiving a notice that there's already a return on file for that Social Security number — a sure sign the person has been the victim of a scam. When the agency gets two returns for the same number, it will notify the taxpayer by mail and investigate the incident. But if a scammer files a fraudulent return on your behalf before you file, getting your rightful refund can turn into a long, painful process.
One way to "lock down" your Social Security number is to file your taxes as early as possible — beating any would-be scammers to the punch. That means if someone else tries to file a return later using your information, that return will be rejected, and you'll receive a notification by mail from the IRS.
If you need to document your income
Taxpayers may consider filing earlier if they anticipate needing to document their income early in the year. College students applying for financial aid will need their tax return information or their parents' details, with the deadlines for many financial aid applications coming early in February or March.
Also consider if you plan to rent a new house, apply for a mortgage or ask for a personal loan. All of these are good reasons to fill out your return early so you can supply the information as needed to landlords or lenders.
If you owe money
Generally, taxpayers who expect to owe money to the IRS tend to file later during tax season, unlike those who expect refunds and so file earlier.
"For some of my clients, we'll prepare the returns just to get the number, but we'll hold the filing until April 15," Medows said.
If you do find you owe money, though, the IRS gives you until April 15 to pay any tax due, even if you file early in the season.
Not for everyone
Filing early won't work for everyone. If you have any sort of investments, before filing you'll need to wait for your financial institutions to send you earnings forms. Some of these, like a 1099-INT form that lists interest earned in a savings account, typically arrive at the end of January. But more complex investments can take a long time to report their earnings.
"If you have certain types of investments, you may not want to file early," said Jonathan Medows, an accountant based in Manhattan. Some types of investments, like limited partnerships, have until mid-March to issue an earnings statement to their investors, known as a K-1. And it's not uncommon for these statements to be revised after they're issued — meaning taxpayers who filed using the earlier information would be forced to revise their tax returns.