For millions of Americans, there is no getting around the need to file an annual tax return. And if you need to file a tax return, you might as well get it done early.
“The IRS encourages people to file early so you get your refund earlier,” says Joanna Powell, a CPA and managing director in the Boston office of financial firm CBIZ MHM.
Of course, that’s not the only reason to file early. It can also mean more time to double-check your work, plan for payments and avoid tax fraud. What’s more, if you owe taxes, you can always file now and pay later.
Keeping reading to learn why you should consider filing early, what documentation you’ll need and how early filing prevents tax identity theft.
Benefits of Filing Taxes Early
There are several reasons to complete tax returns early rather than waiting until Tax Day:
— More accurate returns potentially resulting in larger refunds.
— Less competition for appointments with tax preparers.
— More time to plan for tax payments.
— Less chance of tax fraud.
The opportunity to quickly receive a refund is reason enough for many people to file early.
“You used to be able to get a federal refund in 10 days,” says Rob Burnette, CEO and financial advisor with Outlook Financial Center in Troy, Ohio. Now, the IRS estimates most taxpayers will receive refunds less than 21 days after filing — though it could be longer due to IRS backlogs.
People who file early may be in line for a larger refund too. That may be because those filing near the tax deadline are often rushing to complete their paperwork and could miss valuable deductions or credits.
“You don’t know if you have itemized deductions until you add them up,” says Patrick Collabella, associate professor of accounting and taxation at St. John’s University in Queens, New York City.
Starting early means more time to gather information for potential deductions. Completing tax forms early also provides an opportunity to plan for how to pay the bill if you end up owing money. Even if a tax return is filed early, payment isn’t due until Tax Day, which is April 18 this year.
[READ: Your Guide to 2021 Tax Deductions.]
Appointments with tax professionals may be hard to come by during the final weeks before the tax-filing deadline. Making an early appointment could mean you are able to meet at a convenient time, and your return won’t have to compete for your tax preparer’s attention. “They haven’t gotten buried yet,” Burnette says.
However, one of the biggest reasons to file as soon as possible is to avoid tax fraud. “The chance of identity theft through a fake tax return is mitigated,” Powell says.
Fraudsters use stolen Social Security numbers to create phony returns and file them early in the tax season. If they aren’t flagged for review by the IRS, the return is processed and a refund issued. Then, when the legitimate taxpayer tries to file his or her return, the system rejects it. The result can be a protracted process in which an affidavit must be completed, supporting documentation provided and a paper return filed.
The best way to avoid being a victim of tax identity theft is to file your return as soon as possible.
When Is the Earliest I Can File My Tax Return?
The IRS began accepting tax returns on Jan. 24 this year. That was significantly earlier than the opening date of Feb. 12 in 2021.
“Last year, at this time, (legislators) were changing laws during the tax filing season,” Powell says. That meant there was a shorter window to file as the IRS scrambled to make adjustments to accommodate those changes. “There’s nothing like that happening this year.”
Still, not everyone may be able to file right now if they haven’t received all their tax forms yet. “If you’re an investor, you’re going to have to wait for 1099s from the investment houses,” Collabella says. Those may not go out until mid-February.
Meanwhile, those who own pass-through entities such as a partnership or S-corporation may not get tax forms for their business income until March.
However, employees should have their wage information by now. Employers were required to mail all W-2 forms, which record worker wages, tax withholding and other data that is crucial for tax filings by Jan. 31. The same deadline applies for 1099 forms, which are sent to independent contractors or used for nonwage sources of income such as interest or disbursements from retirement accounts.
[How to File Taxes When You Are Self-Employed]
What Do I Need to File My Taxes Early?
Depending on the complexity of your income and tax situation, you may need the following documents, among others, before you can file your return:
— W-2 forms from wage-earning jobs.
— 1099 forms from independent contractor or gig work.
— 1099 forms from retirement, brokerage or dividend income.
— Mortgage and property tax statements for itemizing deductions.
— Charitable donation receipts and copies of medical bills for itemizing deductions.
— Business expense receipts for Schedule C business deductions.
— K-1 form for partnership income.
To ensure you have all the necessary documents for filing, consider where you have earned money in the past year and in which accounts you have invested. The answers will help determine which tax forms may be coming your way.
If you file before receiving all the necessary documentation, you can always amend your return when new information arrives. However, this can be a time-consuming process and may result in additional tax filing fees from software providers.
[What to Do After You Receive Your W-2]
How to Avoid Tax Fraud
Although the IRS has taken steps to curtail tax-related identity theft, the practice is still prevalent. Fortunately, those who can’t file early may have other options to deter fraud.
The IRS offers a transcript service that lets taxpayers review activity on their record. This method doesn’t prevent identity theft, but it helps taxpayers proactively address problems rather than finding out about fraud when filing their return.
Using an identity protection PIN offers another layer of security against fraud. “People who have had issues with tax fraud in the past are going to be issued an IP PIN,” Burnette says.
In the past, the federal government only issued PINs to those who were victims of tax identity theft and those who lived in specific states. But now, anyone can opt into the program. Be aware that once you request a PIN, you must use one to file every year.
If you’d prefer not to use a PIN, filing as early as possible remains one of the best ways to avoid being a victim of tax identity theft.
More from U.S. News
Tax Prep Checklist: Collect These Forms Before Filing Your Taxes
Your Guide to the 1040 Tax Form
Married Couples: Is It Better to File Taxes Jointly or Separately?
The Benefits of Filing Taxes Early originally appeared on usnews.com
Update 02/15/22: This story was published at an earlier date and has been updated with new information.
