When to File Your Taxes and Should You Try to Be Early?

While the common advice is to file your taxes early, is that always the best choice? Depending on your specific circumstances, it might actually be more advantageous to wait and ensure the accuracy of your return. Let's break down the factors to consider when deciding the optimal time to file your taxes.

If you so happen to file your taxes early, it comes with a few advantages...

If you expect a refund, filing early means you'll get your money sooner.
If you owe taxes, early preparation gives you extra time to save the money needed to pay your taxes.
Filing early allows you to assess if you qualify for contributions to tax-advantaged plans and provides additional time to save for those contributions.
Note that if you have ownership in a partnership or another pass-through entity, you might need to wait until at least mid-March to file your taxes.

Every year, Americans undertake the annual ritual of filing their tax returns, a process that involves reporting income to the federal government and settling tax debts. In 2019, this ritual resulted in nearly 72% of filers receiving a tax refund, averaging close to $2,900. Given that this money rightfully belongs to you and doesn't accrue interest, it's a financially sound decision to file your taxes early and access your refund sooner.

For most individuals, the best course of action is to file their taxes promptly, or as soon as possible. Here's 3 reasons why it's a wise move:

Early filing expedites the IRS's processing of your return, leading to quicker determination of your tax liability.
It allows you to discover sooner whether you owe taxes, providing ample time to save the necessary funds.
Early filing grants you the opportunity to evaluate if amendments are needed in case errors or omissions come to light.

Revised 1099 Forms

Whether you earn a salary, deal with investment gains or losses, or have various income sources affecting your taxes, specific tax forms exist to facilitate reporting this data to the IRS.

By law, your employer is required to mail your W-2 Form by January 31st. This vital document details your earnings, tax withholdings from the prior year's paycheck, and other critical information necessary for filing federal and state taxes.

The same timeframe generally applies to different versions of the 1099 Form. Companies you conduct business with must dispatch your 1099 Form by January 31st. Besides providing you with a copy, they must also submit their 1099s to the IRS.

While you technically can prepare your return without the 1099s, it's advisable to review them to ensure the accuracy of the information you report on your tax return. If you spot discrepancies on your 1099 form, it's a good practice to contact the company to request a revised version to be filed with the IRS. Neglecting this may lead the IRS to believe you owe a different amount from what you've reported on your return.

In some cases, the company may recognize their reporting error and send you a corrected 1099 Form. Once you have the necessary forms and incorporate this information into your return, you can proceed with the filing process. However, if you've already filed using the initial 1099 with the error, you might need to submit an amended return to reflect the corrected and precise data.

Schedule K-1

The Schedule K-1, a vital tax document, is issued annually to divulge taxable activities stemming from ownership interests in various "pass-through" business entities. However, it's important to note that this form isn't directly filed with an individual owner's tax return. Business partners and S corporation owners usually expect to receive these informative forms by March 15, providing essential insights into their taxable income. Regrettably, due to the later delivery schedule, Schedule K-1 often lags in the tax season's timeline, typically being among the last documents to reach taxpayers. As a consequence, the absence of your K-1 might hinder the accurate filing of your tax return. A potential solution may lie in proactive measures. If you are a business owner with the ability to self-prepare your K-1 while managing your business taxes, this proactive approach allows you to prepare the document ahead of time, facilitating a smoother process for reporting the K-1 information on your personal taxes.

Retirement Plan Contribution Limits

Annually, the IRS provides an opportunity for individuals to contribute funds to tax-advantaged plans like individual retirement accounts (IRAs) or health savings accounts (HSAs), provided you meet specific criteria. Filing your taxes ahead of schedule offers a unique advantage – it swiftly determines your eligibility and contribution limits.

By filing early, you not only gain clarity on your qualification status, but you also secure ample time to save and make contributions within the limits applicable to the previous year. This strategic approach empowers you to optimize your financial planning and capitalize on the benefits of these tax-advantaged plans.

Should You Wait to File Your Taxes?

Every year, the IRS opens the door for individuals to contribute funds to tax-advantaged plans like individual retirement accounts (IRAs) and health savings accounts (HSAs), provided they meet specific criteria. Filing your taxes early can serve as a crucial tool to assess your eligibility and contribution limits. It not only offers insights into your qualification status but also grants you ample time to save and contribute within the limits set for the previous year.

But should you opt to postpone your tax filing? For uncomplicated tax situations, filing early may expedite your refund, putting money that rightfully belongs to you back in your hands. This is essential because funds held by the IRS typically do not accrue interest.

Additionally, early filing comes with its own set of advantages:

No Extension Hassles: Filing early eliminates the need for filing extensions, providing peace of mind and relieving potential stress.
Time to Save: It offers a cushion to save money for any potential tax bill. Filing early does not necessarily mean immediate payment, as you generally have until the filing deadline to settle your taxes owed.

Given that most taxpayers require W-2s and 1099s for their returns, and these forms must be mailed by the end of January, there's often no need to delay tax filing. However, if you later discover a significant change in your received 1099 Form after filing, you might need to consider an amended return. For those involved in partnerships or other pass-through entities, filing by at least mid-March may be necessary, adding a layer of complexity to the decision-making process.

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