Reasons to File an Early Tax Return

Reasons to File Your Tax Return Early

Even though many taxpayers file their tax returns on or about April 15 each year, there is no need to put it off until the last minute. Filing a tax return early can make sense for various reasons, such as getting your refund sooner or minimizing the risk of identity theft.

Even if you don't file early, there are good reasons to begin your tax preparation as soon as you can. For starters, it gives you the time you need to collect the documents and information required to claim all of your deductions. That way, you can avoid the headache of last-minute stress over receipts.

What's more, if you use a paid preparer, your accountant will have more flexibility and may be able to start working on your accounts sooner. In addition, tax preparers may assess cheaper fees or a lower hourly rate if your tax return is prepared during non-peak periods.

Although the official tax filing deadline for most taxpayers for their 2023 returns is April 15, 2024, the IRS often kicks off the tax season by accepting tax returns in January.

Start With the Standard Deduction

To get started as early as possible, be sure that you know the latest standard deduction that you can take.

One of the most important decisions taxpayers have is whether to itemize deductions or take the standard deduction.

Here's a summary of the standard deductions for the 2023 and 2024 tax years:

Sources: Internal Revenue Service

There are additional deductions if you are at least age 65 and/or legally blind by the end of the tax year. If you file a joint return, each spouse who qualifies can claim the additional amount. If you are 65 or older and legally blind, you can claim twice the additional deduction.

Here's a rundown of the additional deductions:

Sources: Internal Revenue Service

Get a Refund Faster

By filing early, you can avoid procrastinating, give yourself peace of mind, and check this important item off your to-do list. Once the IRS announces that it will begin processing returns, taxpayers may submit them.

Early Filing Stats for 2024

The filing season for the 2023 tax year began on Jan. 29, 2024. As of Feb. 2, 2024, IRS records showed:

• The IRS had received 15,318,000 total tax returns.
• Of these, 13,928,000 returns had been processed.
• Out of the total returns received, 14,909,000 were e-filed.
• The total number of refunds was 2,616,000.
• The total amount of refunds was $3.649 billion.

If you have money coming to you, there’s no reason to let the government keep it longer than necessary. Filing sooner means a faster refund because the IRS won’t be as busy early in the tax season as it will be in April.

Some people count on their income tax refunds to pay major bills. Filing early puts the money in your hands sooner and may help you avoid taking out an expensive short-term loan to cover those expenses. That's especially helpful if you’re still paying off your holiday bills.

In addition, bear in mind that purchasing power also decreases due to inflation; the longer you wait for your refund, the less that money may be worth when you receive it.

Avoid Identity Theft

The sooner you file, the less time that an identity thief has to file in your name and take your refund. This can lead to all sorts of tax reporting complications, especially if the thief claims false deductions, fails to report income, or otherwise taints your name and IRS record. Unwinding the damaged caused by a fraudulent tax return can take months.

Unfortunately, you may not know you're a victim of identity theft until the IRS notifies you that there's a possible issue with your return. According to the IRS, you should watch out for potential tax-related identity theft if:

• A letter from the IRS inquires about a tax return that you didn't file.
• You're prohibited from e-filing your return due to a duplicate Social Security number.
• An IRS tax transcript that you did not request arrives in the mail.
• You receive an IRS notice that an online account has been opened in your name (and you didn't create it).
• You receive an IRS notice informing you that your existing online account was accessed or disabled and you had no role in either.
• The IRS notifies you of additional tax owed or a refund offset, or that actions to collect were taken for a year for which you did not file a tax return.
• The IRS claims you received wages or other income from an employer unknown to you.
• You were assigned an Employer Identification Number (EIN) without requesting it.

Avoid the Tax Season Rush

Filing early gives you the time to understand fully any changes to tax law or deal with changes in your life that may alter your filing status. Mistakes from rushing at the last minute can trigger audits that can lead to penalties and interest.

Your certified public accountant (CPA) or other tax preparer will not be as busy in January or February as in April. Early access means your CPA will have additional time to consider your situation carefully and help you with your return. In addition, your CPA may charge less during these earlier, slower months.

If you are in the process of buying a home or going back to college (and applying for financial aid), you'll need information from your most recent tax return. Preparing your taxes early will provide you with the most up-to-date information available.

Avoid Amended Returns

Starting early gives you the time to file an accurate return. An inaccurate return will likely become an amended return. Amended returns invite audits. Here are some things to watch out for as you pursue accuracy.

• Mistakes in official documents. Check all incoming statements, including W-2s, 1099s, interest statements, and anything used to justify a deduction. Companies, banks, and financial institutions make mistakes. Catch them before you file.
• Forms that arrive late. Make sure that you have all the documents that you need, potentially including a 1099 or K-1. Don't click “send” or drop your return in the mailbox before you confirm that all the necessary data has been included on your return.
  
• Incomplete amendments. If you do have to amend your return, correct everything that is wrong and not just items that benefit your position financially.
• Tax form changes. As a result of the Tax Cut and Jobs Act (TCJA) of 2017, the layout of Form 1040 changed. In fact, Forms 1040-EZ or 1040-A were eliminated. And if you're an older adult, you can now opt to use the new "U.S. Tax Return for Seniors," 1040-SR.
• Tax law updates. Legislation that was passed before April 15 may not have been incorporated into paper tax forms or tax software yet. Watch the news and check financial websites such as Investopedia for tax news and changes. Consult with a tax preparer or accountant. If necessary, you can file an amended return.

Tax Change Example

For tax year 2017, private mortgage insurance (PMI) was not an allowed itemized deduction. On Feb. 9, 2018, a tax law reinstated the deductibility of PMI for taxpayers with less than $100,000 in taxable income. By that point, Form 1098, Mortgage Interest Statement, had already been mailed to taxpayers by their lenders.

After the tax law change, an amended Form 1098 had to be sent out by lending institutions. Qualifying taxpayers who had already filed taxes needed to file an amended return to include the additional deduction.

Shift Tax Burdens

If you make a head start on your taxes before the end of the year, you will have time to estimate capital-gains distributions, harvest losses, contribute to a 529 savings plan, or make last-minute charitable contributions.

You can also take advantage of the opportunity to shift deductible items—such as property taxes, business expenses, or even mortgage payments—to a year that makes the most sense tax-wise.

You have until the tax filing deadline (April 15 in 2024) to make 2023 contributions to a company 401(k), individual retirement accounts (IRA), and health savings accounts (HSAs).

Give Yourself Time to Save

Filing early gives you time to save up to pay money that you may owe to the IRS. Remember, you don’t have to pay your taxes until the filing deadline. If you wait too long to get started, you may discover that you owe more than you expected. That could put a real crimp in your budget.

The IRS suggests reviewing your withholdings and tax payments in the final quarter of the year to avoid a surprise tax bill. The IRS' Tax Withholding Estimator tool can help ensure that you're withholding accurately.

The Bottom Line

Most experts agree that it’s best to start your return as early as possible. The decision to file early may depend on the complexity of your return and whether you are receiving a refund. Follow the advice of your financial or tax advisor to make sure that your return is accurate and complete.