Take a fresh look at your lifestyle.

Everything You Need to Know About Filing Taxes Early

0



Believe it or not, tax season has already begun. Amid the flurry of tax forms flooding inboxes and mailboxes, you might wonder about filing taxes early this year. If you’re expecting an IRS refund, it’s tempting to run out and try to get your return in now. Less enticing is rushing to submit tax documents if you owe money.

However, early birds in a few states might catch some unappetizing worms this year when it comes to tax returns. The Internal Revenue Service (IRS) finally issued guidance late last week saying most taxpayers who received state payments related to general welfare and disaster relief won’t have to report that income for tax purposes.

The exceptions to this rule are taxpayers from Georgia, Massachusetts, South Carolina, Virginia and Alaska who will have to consult the IRS and state officials for more nuanced rules about the taxability of relief payments.

Given this unexpected road bump, we spoke to several tax experts about the best time to pay taxes this year. Should you file earlier if you’re expecting a big return or can you skate along until right before the filing deadline to make an IRS payment? Here’s what they had to say about whether early filers are smart to beat the crowds and any potential risks in filing early.

When Does Tax Season Begin?

If it seems like everyone becomes a procrastinator during tax season, you’re not wrong. Technically, the 2023 tax season kicked off Jan. 23, when the IRS website opened to the submission of 2022 taxes electronically. This year’s Tax Day, or the last day to submit online or mail paper returns before incurring late penalties, is Monday, April 18.

That means Americans have three months to gather tax documents and work with a tax professional or tax software to ensure an accurate tax return. Despite this generous window and a slew of free tax help resources, analysis of IRS data indicates about 30% of Americans still waited until April to file during the most recent tax year. The same data shows only about 12% of Americans are early filers, meaning they file electronically in late January as soon as the window opens.

Pro Tip

If you are worried about making mistakes when filing, we highly recommend using tax software like TurboTax, H&R Block or TaxAct.

How Early Can I File My Federal Tax Return?

Although the IRS has advised caution to taxpayers in five states to clarify the taxability of state payments before they file, it’s full steam ahead for most taxpayers across the country.

However, it’s advisable to wait until you receive all your tax documents, including any 1099-Ks from payment platforms like Venmo and PayPal. Because gig workers and self-employed contractors rely on a patchwork of tax documents to ensure a complete and accurate return, this can be a tricky waiting game.

Robert Persichitte, a certified public accountant and founder of Delagify Financial, likes to remind taxpayers who owe money that they can still file early and pay later.

“You don’t have to pay when you file,” Persichitte clarifies. “Even if you can’t pay your taxes, you should still file. There are late-filing penalties that you’ll have to add t

What if you can’t pay your taxes? First, don’t panic. Second, read this article on what steps you should take.

Do You Get a Bigger Tax Refund if You File Early?

There’s no evidence that filing early means bigger tax refunds. However, there’s plenty of proof that taking the time to file an accurate return provides a better chance of a larger kickback from Uncle Sam.

Rushing at the last minute to file means you could overlook eligibility for certain tax credits, like the child tax credit or the earned income credit. And if you don’t wait for all your tax paperwork to arrive, you might miss sources of income you should report such as unemployment income or interest from a savings account.

One myth we can definitely debunk is whether when you file increases your chances of being audited. Barbara Weltman, an attorney, nationally recognized tax expert and author of “J.K. Lasser’s 1001 Deductions and Tax Breaks 2023,” says when you file has no bearing on whether you’ll be audited. “Filing early or late has no impact on the chances of being audited,” Weltman confirms. “Though some may believe otherwise.”

5 Reasons to File an Early Tax Return

  1. Avoids processing delays
  2. Limits stress over tax deadlines
  3. Decreases risk of tax identity theft
  4. Provides time to put a payment plan in place
  5. Makes connecting with a tax preparer easier

1. Filing early avoids processing delays.

The 2022 tax season was filled with delays. While two-thirds of taxpayers were entitled to an IRS refund that averaged $3,200, those refunds took much longer to process. And for unfortunate taxpayers who had to adjust returns, those adjustments took the IRS an average of 197 days to process.

Persichitte advises his clients to file as early as they can. “Filing early helps you avoid the rush, fix any issues and understand your taxes. If there is an issue like misspelling a name, the IRS rejects the return. Filing early allows extra time to fix those kinds of problems as they arise.”

2. Filing early limits stress over tax deadlines.

Having a deadline hanging over your head is never pleasant. Knowing not only when you’ll get your return back but how much you can expect takes much of the stress out of the tax process. When everyone else is scrambling in April, you can be sailing away to somewhere tropical courtesy of your generous tax return.

Pro Tip

Got your filing squared away and looking toward next year’s taxes? Use our guide to 2023 tax brackets to understand how your taxes might change.

3. Filing early decreases the risk of tax identity theft.

Tax experts say one of the biggest reasons to file early is that it reduces the risk of someone stealing your tax return. “Early filing is a way to thwart tax identity theft,” Weltman explains. “If you file early, it prevents an identity thief from filing under your Social Security number.”

Tax refund fraud happens a lot more than you might think. The U.S. Justice Department has an entire task force devoted to this kind of tax fraud and reports millions of Americans have their tax returns stolen every year.

4. Filing early provides time to put a payment plan in place.

The longer you wait to file, the less time you’ll have to determine if you owe money. Before that tax bill comes knocking, give yourself a few weeks to devise a plan.

Persichitte says gig workers are notorious procrastinators. “Typically, they will owe taxes and put it off because they don’t want to pay the bill. Oftentimes, they are shocked by how much they owe in taxes. If they started in February, they’d have more time to prepare, save up the money for the tax bill and have the time they need to gather their documents.”

5. Filing early makes connecting with a tax preparer easier.

If you think you’re busy during tax season, wait until you see your accountant’s schedule. Advice from a tax professional on preparing your return is invaluable, but their time comes at a premium in March and April.

Adjusted gross income. The additional child tax credit. Earned income tax credit. Taxes can be a lot to manage. Seeking out tax tips early this tax season can save money and maximize the return that hits your bank account.

Preparing returns yourself and need a little tax help? We’ve got you! Check out our complete guide to how to file taxes and maximize your return.

Are There Any Reasons Not to File Early During Tax Season?

Unless you live in a state where you need to clarify the taxability of state payments, there’s no good reason not to file early. Weltman says you might need to hit pause if you’re waiting for more tax information, are making a 2022 contribution to an IRA or health savings account, or you’re trying to work with a tax professional on your return.

Persichitte echoes this advice. “I would only wait to file if you are still waiting on a document. Some documents, like K-1s, might not be available until after the filing deadline. The best action is to file an extension right when you know your documents will be late.”

Frequently Asked Questions About Filing Taxes Early

Does Filing Early Affect the Child Tax Credit?

Weltman says filing early can present a problem for those who qualify for refunds from the earned income credit or the refundable child tax credit. “By law, the IRS cannot issue them before Feb. 15. For returns filed earlier, the IRS says to expect refunds this year by Feb. 28, although it could be earlier.” 

I Don’t Have All My Tax Documents Yet. What Should I Do?

Whether you’re missing a 1099 or a W-2, wait until mid-February before you panic. While employers are required to provide these forms by Jan. 31, they can get delayed in the mail. If nothing turns up, you can contact the employer or the IRS (call 1-800-829-1040), and they’ll resolve it. In the meantime, you may be able to estimate your income using your own records.

How Quickly Will I Get My IRS Refund Through Direct Deposit?

Good news. If you file electronically, the IRS says 9 out of 10 taxpayers can expect their return to be processed within 21 days. The IRS says to use e-file and choose direct deposit to speed up the refund process. If you prefer to submit a paper return, note that the IRS says you could face delays of up to six months. Within 24 hours of filing online, you should be able to check the status of your refund using the IRS Where’s My Refund? tool.

Kaz Weida is a senior staff writer at The Penny Hoarder covering saving money and budgeting. As a journalist, she has written about a wide array of topics, including finance, health, politics, education and technology, for the last decade.




Source link

Leave A Reply

Your email address will not be published.