For millions of Americans, there is no getting around the need to file an annual tax return. In most cases the earlier you get it done, the better off you’ll be.
“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 the 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.
That said, early filing isn’t right for everyone. If you are waiting on tax forms from investments or business ventures, you shouldn’t file until you have all these documents in hand.
Keep reading to learn why you should consider filing early, what documentation you’ll need and how early filing prevents identity theft.
[READ: Tax Prep Checklist: Collect These Forms Before Filing Your Taxes.]
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.
— Lower chance of tax fraud.
The opportunity to quickly receive a refund is enough for many people to file early, but it isn’t the only reason to get started on your return now.
[Read: How to Get the Biggest Tax Refund This Year.]
People who file early may be in line for a larger refund. That may be because those filing near the tax deadline are often rushing to complete their paperwork and could miss valuable deductions or credits.
Starting early means you have more time to gather information for potential tax breaks. Plus, for divorced parents, an early filing could head off potential problems when it comes to claiming children on a return.
“If you have an agreement with your ex-spouse on who can claim the kids, sometimes they don’t adhere to the agreement and claim them anyways,” says Moira Corcoran, a CPA and tax expert for the website JustAnswer.
If that happens, the IRS will reject the next return that is filed with the same dependents. “First one to file and claim them gets the deductions,” she says.
Completing tax forms early also provides an opportunity to plan for how to pay the bill if you end up owing money. “If you have a balance due with your return, you have until the filing deadline to make the payment,” Corcoran says. The filing deadline this year is April 15.
Appointments with tax professionals may be hard to come by during the final weeks before the 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.
However, one of the biggest reasons to file as soon as possible is to avoid tax fraud. “You want to file your taxes before someone else tries to file them for you and claim your refund,” says Leah Diehl, a CPA and assistant professor of accounting at the University of Montana College of Business.
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.
When Is the Earliest I Can File My Tax Return?
The IRS began accepting tax returns on Jan. 29 this year, but some people might not be able to file right now if they haven’t yet received all their tax forms.
For instance, 1099 forms from investment accounts 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 non-investment 1099 forms, which are sent to independent contractors and used for nonwage sources of income, such as interest or disbursements from retirement accounts.
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.
— 1099-K forms if you received more than $20,000 and had more than 200 transactions from third-party payment services such as PayPal or Venmo.
— 1095-A form for health insurance purchased on the Health Insurance Marketplace.
— 1095-B form for employer-provided health insurance coverage.
— 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’ve earned money in the past year and in what accounts you’ve invested. The answers will help determine which tax forms may be coming your way.
“Taxpayers have to make sure they have all of their information ready to go,” Diehl says. “Sometimes, forms like the W-2 are corrected and revised by employers, which can cause errors if you file too early.”
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 filing fees from software providers.
No Need to Wait for Expanded Child Tax Credit
Legislation currently in Washington could change tax returns for parents this year. The Tax Relief for American Families and Workers Act of 2024 passed the U.S. House of Representatives on Jan. 31, 2024, and includes an expanded child tax credit which would apply to the 2023 tax year.
If approved as currently written, the bill would boost the refundable portion of the child tax credit. For eligible households, that could translate into an average tax cut of $680, according to an analysis by the Urban-Brookings Tax Policy Center.
It remains to be seen whether the bill — and expanded child tax credit — will be passed by the U.S. Senate, but don’t let that delay your tax return.
“Taxpayers who send their returns to the IRS early in (the) filing season will not need to file amended returns — the IRS will send them their additional refund automatically,” wrote Senator Ron Wyden, Senate Finance Committee Chair and one of the bill’s sponsors, in a statement.
How to Avoid Tax Fraud
Although the IRS has taken steps to curtail tax-related identity theft, it is still widespread. 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 records. 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. In the past, the federal government issued PINs only to those who were victims of tax identity theft and those who lived in specific states. 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
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How to File an Amended Tax Return
Should You Be Making Quarterly Tax Payments?
4 Benefits of Filing Taxes Early originally appeared on usnews.com
Update 02/07/24: This story was published at an earlier date and has been updated with new information.
