Should You File Taxes Early This Year?

It’s the first quarter of the year and that means tax season has finally arrived for the 2023 tax year (returns you’ll file this year). We’re a little over halfway through and yet, for many of us, tackling our taxes is hardly a top priority at this point in the season. After all, the deadline for filing isn’t until April 15 (April 17 if you’re in Maine or Massachusetts). So, it’s tempting to delay facing this often tedious task for a few more weeks. After all, why dive into the complexities of tax filing now when there’s still time to procrastinate? Here’s why: There are several benefits to filing your tax return early (or at least getting it ready to file). You could cut your tax bill, avoid identity theft, get paid sooner, reduce stress, and more just by doing something now that you’ll have to do soon anyway. So, for all my fellow procrastinators, let me try to convince you (and myself) to bite the bullet and file your tax return early this year by pointing out the benefits of filing your tax return early. If we’re all aware of the advantages, we might just see the light and get moving now.

What’s Considered an Early Tax Return?

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Before jumping into the benefits of filing your taxes early, let’s quickly define what it means to file “early.” This year’s tax season officially started on Jan. 29, 2024. That’s the day the IRS began accepting and processing federal income tax returns for the 2023 tax year. However, if you’re using commercial tax software to file your return, you could have completed your return earlier than Jan. 29. In that case, the software company would have held your return until the IRS started processing them. In addition, the IRS Free File program opened on Jan. 12, 2024. If you completed your return before the official start of tax season using commercial software provided by a Free File partner, your return would have been held until Jan. 29. Since you could have completed your federal income tax return in mid-January, let’s say an “early” tax return is anything completed and filed from that point until the end of February. That means roughly within the first three weeks after tax season “officially” begins. So, what are the benefits of filing your taxes early?

1. You’ll Have More Time to Find a Tax Preparer

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To start, you’ll have more time to find a tax preparer. If you’re going to hire someone to do your taxes this year, you don’t want to wait until the last minute to find a tax preparer. The best tax professionals get booked up quickly. So, if you don’t want to pick a preparer from the bottom of the barrel, move to the front of the line and get your return done early. Plus, if you wait too long, you might not be able to find anyone at the last minute who can handle your return. If you stroll into a tax preparer’s office in March or April, don’t be surprised if you’re turned away.

2. Your Tax Software Might Be Cheaper

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The commercial tax software providers (e.g., TurboTax or H&R Block) have a habit of raising their prices toward the end of tax season. This isn’t always disclosed up front, either. So, pay close attention if you do file later. However, the best way to avoid this sort of price increase is to complete your return early if you plan to use one of these software products (you might even get a discount). And before you pick a software provider, check out our list of the best tax software for 2024. Related: Tax Day 2024: When Is the Last Day to File Taxes?

3. You’ll Get Your Tax Refund Faster

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The sooner you file your federal tax return, the sooner the IRS can start processing any tax refund you’re owed. If you e-file your return and sign up for direct deposit, you’ll typically get your tax refund within 21 days (assuming there are no errors). It can take a month or more if you file a paper return and/or request a paper refund check in the mail. But either way, filing early will start the clock sooner rather than later. Related: How to Get Your Tax Refund Faster There’s also another reason why filing early can speed up your tax refund. As tax season progresses, the IRS’s workload increases, which can result in processing delays that might delay your tax refund (especially if you file a paper return and request a paper refund check). Early filers stay ahead of the tax return tsunami that slows down the IRS each year.

4. You’ll Reduce the Chance of Tax Fraud

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A common tax fraud scheme that pops up every year that goes like this: Someone steals your personal information and files a fraudulent tax return in your name. Of course, the bogus return requires a tax refund that’s sent to the thief. You subsequently file a legitimate tax return. However, the IRS flags your return because it already received the fake return using your personal information. The crook has already received a refund, while you’re bogged down dealing with the IRS and trying to figure out what’s going on with your lawful tax return. Filing early can prevent this nightmare scenario. That’s because there’s a much better chance the IRS will get your tax return first. So, when the criminal files a second return in your name, the IRS will reject that one—not yours. Related: 10 ‘Most Serious” IRS Problems Taxpayers Will Face WealthUp Tip: If you’re the victim of tax-related identity theft, respond immediately to any IRS notices you receive in the mail (e.g., call the number provided). The IRS won’t contact you by phone, email, or text. If your e-filed return is rejected because a duplicate return was filed using your Social Security number, or if the IRS instructs you to do so, complete an identity theft affidavit using Form 14039. To prevent future problems, request an Identity Protection PIN, which is a six-digit number that prevents other people from filing a return using your personal information. Related: Do You Even Have to File a Tax Return This Year?

5. You’ll Have Opportunities to Lower Your Tax Bill

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You can contribute to an individual retirement account (IRA) or health savings account (HSA) for the 2023 tax year all the way up until April 15, 2024 (April 17 if you live in Maine or Massachusetts). So, if you haven’t already reached the 2023 contribution limits for either of those two types of accounts, you still have time to save a bit more for 2023. Plus, you may qualify for a tax deduction on the federal tax return due this year for contributions to a traditional IRA or HSA assigned to 2023. You might also be able to claim the Saver’s Credit on the return you file this year for 2023 contributions to an IRA. So, what does all this have to do with filing your tax return early? If you fill out your 2023 tax return now (but don’t submit it yet) and see that you owe taxes this year, you’ll still have a couple of months to scrape up some more money to put in a traditional IRA or HSA. When you eventually send your return to the IRS, you’ll likely be able to claim a deduction, and possibly the Saver’s Credit, which will bring your tax bill down (and maybe even trigger a refund). Related: Best TurboTax Alternatives [Tax Software Like TurboTax] On the other hand, if you wait until the last minute to fill out your 1040 form, you might not have time to pull together the funds necessary to claim a tax deduction or credit. In that case, you’ll end up paying more in tax. WealthUp Tip: If you put money in an IRA or HSA this year for the 2023 tax year, make sure you let the account administrator know that your contribution is for 2023. Related: IRA Contribution Limits for 2023 + 2024

6. You’ll Have More Time to Pay Any Tax Due

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You might also need time to dig up some additional cash to pay any taxes you owe. Even if you file your return now, you still have until April 15 to pay any tax owed (taxpayers living in Maine and Massachusetts have until April 17 to pay). The earlier you complete your return and determine exactly how much tax is due, the more time you’ll have to figure out how you’re going to pay the bill. Related: 30 Tax Statistics and Facts That Might Surprise You What if you can’t pay by the April 15 deadline? You can apply online for a payment plan, or request an installment plan using Form 9465. If you have an “undue hardship” (i.e., you’ll have a substantial financial loss if you pay your tax when it’s due), you can ask the IRS to extend your payment deadline using Form 1127. Other, more complicated options include requesting an “Offer in Compromise” or a temporary delay of the collection process. Related: 8 Free Tax Filing Options for 2024

7. You Can Adjust Your Withholding Sooner

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Ideally, the income taxes withheld from your wages during the year will come pretty close to your tax liability for that year. If that’s not the case, you’ll probably end up having to write a big check to the IRS at tax time (which nobody wants to do), or you’ll get a large tax refund (which essentially means you gave Uncle Sam an interest-free loan for the year). Related: IRS Erases $1 Billion In Back Tax Penalties If you get either a tax bill or a big tax refund this year, you can avoid the same problem when you file next year’s tax return by adjusting the income tax withheld from each paycheck this year. To do this, simply give your employer a new W-4 Form and make sure all tax credits and tax deductions that you qualify for are reflected. Filing early means you’ll know what your tax bill or tax refund is sooner, which will give you more time to submit a new W-4 form. You’ll also have more information about deductions and credits available, which will help you calculate a more accurate withholding amount. In addition, if you don’t want a huge change to your current paycheck, filing a new W-4 form earlier in the year will translate into a smaller per-paycheck adjustment. Related: What’s Your Standard Deduction?

8. You’ll Have Tax Information Available for Applications

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If you’re about to buy a house and need a mortgage, you’ll probably have to provide information from your tax return to complete a loan application. The same could be true if you’re moving to a new apartment and need to fill out a rental application. You might need to provide tax returns to qualify for certain government assistance programs, too. Don’t put these or other applications on hold until April. Filing your tax return early will allow you to complete any applications that require 2023 tax information now. Related: Child Tax Credit FAQs [What Every Parent Needs to Know]

9. You Won’t Be Stressing About Taxes Any Longer

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Do you really want to be worrying about taxes for the next few months? Tax season can be stressful. But once you file your return, the anxiety that goes along with the whole tax filing process melts away. Related: Do You Have to File Taxes This Year? Thus, filing your tax return early reaps not just financial benefits, but emotional benefits, too. When it’s done, you can sit back, relax, and enjoy life without having to fret over taxes (assuming you’re not audited!). Related: 8 Free Tax Filing Options for 2024 Plus, once spring arrives and the weather gets warmer, the last thing you’re going to want is to be stuck inside dealing with tax forms, tax preparers, or the IRS.

When Not to File Early

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There are some circumstances under which you probably don’t want to file your tax return early. Some of the reasons why you might want to wait to file are covered in the following slides. (Just a note: Even if you wait to file your tax return, that doesn’t necessarily mean you should wait to start your return. That way you can spread out the work and avoid a last-minute crunch.) Related: Charitable Tax Deduction: What to Know Before Donating

1. You Haven’t Gotten All of Your Documents Yet

Not everyone is as timely and reliable as you would like. As a result, some important tax forms might not arrive on time. While you should expect to have all of your tax forms by their respective due dates, it doesn’t mean you’ll always get them by that time. If you’re still waiting on some tax forms, such as W-2, 1099, or K-1 forms, you might want to pump the brakes on filing your return. Related: States That Tax Social Security Benefits

2. You Need More Time to Fund Certain Tax-Advantaged Accounts

If you want to contribute more money to an IRA, HSA, SEP IRA, or solo 401(k) for the 2023 tax year so you can claim a tax deduction for it on your return, you need to put the money in the account before you file. If you need more time to gather the necessary funds to contribute to an account, that’s a good reason to delay your tax filing. Related: Federal Tax Brackets and Rates

3. You Have a Family Crisis or Pressing Matter to Focus on First

Life happens, there’s no denying it. If you’re faced with a family crisis, emergency, or other situation that needs your attention right away, it’s perfectly fine to push your tax return back until later in the tax season. Related: Earned Income Tax Credit (EITC) – How Much, Eligibility + More

4. You Need to Do Some More Research

If you’ve got a complicated tax situation or otherwise need to conduct a bit of due diligence before filing your return, it’s a good idea to wait to file. You don’t want to file a return, discover something was amiss or handled incorrectly on your return, and then have to file an amended return after the fact. It’s more important to file a correct tax return than to file it quickly. Related: 10 Worst IRS Problems Taxpayers Will Face This Year

5. There’s a Change in the Tax Law

If there’s a change in the law at the beginning of the year that impacts your tax return, but the new law isn’t accounted for in the current tax forms, waiting to file until there’s some additional guidance from the IRS is a good idea. You’ll want to follow any new developments as they unfold and stay on top of what it means for your tax return, then file when you understand what you have to do to comply with the new law. Related: 11 Ways to Avoid Taxes on Social Security Benefits

6. The IRS Tells You to Wait

Lastly, the IRS urges certain taxpayers to delay filing until it can issue guidance on a particular issue. If that’s your situation, make sure you follow what they say and plan accordingly. Related: New 1099-K Threshold Delayed (Again): How Are You Impacted?

What If You Need More Time to File?

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If you do wait to file your federal tax return, you’re still expected to file it by the April 15 deadline (April 17 if you live in Maine or Massachusetts). However, if you can’t file your return before the deadline for any reason, you can request an automatic six-month tax filing extension by submitting Form 4868 or making an electronic tax payment to the IRS. That will push your filing deadline to Oct. 15. Just remember that an extension is only for filing your tax return—not for paying any tax due. So, if you expect to owe taxes this year, estimate the tax you’ll owe and pay that amount by the April 15 or 17 deadline. Like WealthUp’s Content? Be sure to follow us.

Related: What Tax Bracket Are You In?

Perhaps the best way to lower your federal income tax bill is push yourself down into a lower tax bracket to reduce your tax rate. On the flip side, you certainly want to avoid getting kicked into a higher bracket and increasing your tax rate. But, of course, under either scenario you need to have a good feel for where you are right now. For that purpose, check out the federal tax brackets and rates that will apply for your next federal tax return.

Related: What’s Your Standard Deduction?

For most people, their largest and most important tax deduction is the standard deduction. However, the standard deduction amounts change every year to account for inflation. Plus, the standard deduction isn’t the same for everyone. So, before start your tax return or jumping into tax planning mode, you’ll need to know how much your standard will be for the tax year.

Related: Capital Gains Tax: What You Need to Know

Millions of Americans sell stocks, bonds, cryptocurrency, real estate, precious metals, and other types of investment property every year. However, if you sell investments during the year, you might owe capital gains tax on any profits. The good news is that you’ll pay a lower tax rate on capital gains when compared to income taxes on wages, tips, and other “ordinary” income. On the other hand, there are a few landmines to avoid when you sell investment property. Get all the details with our guide to the capital gains tax. Like WealthUp’s Content? Be sure to follow us.