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 certified public accountant and managing director in the Boston office of the financial firm CBIZ.
But 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. Moreover, 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 You File]
Benefits of Filing Taxes Early
There are four good reasons to complete tax returns early rather than waiting until Tax Day:
1. More accurate returns potentially resulting inlarger refunds.
2. Less competition for appointments with tax preparers.
3. More time to plan for tax payments.
4. Lower chance of tax fraud.
Many people file early because of the opportunity to receive a refund quickly, but that isn’t the only reason to start 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 often rush 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 in Libertyville, Illinois.
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 allows you to plan 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 the IRS doesn’t flag the returns for review, the return is processed, and a refund is 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. 27 this year, but people shouldn’t file until they receive all their tax forms.
For instance, 1099 forms from investment accounts should have gone out by mid-February. Meanwhile, those who own pass-through entities, such as a partnership or S-corporation, may not have received tax forms for their business income until mid-March.
Employees don’t have to wait as long for their wage information. Employers are required to mail all W-2 forms, which record worker wages, tax withholding and other crucial tax filing data, by Jan. 31. If you still haven’t received yours by mid-March, check with your HR department or payroll provider as soon as possible.
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 formsfrom independent contractor or gig work
— 1099 forms for retirement, brokerage or dividend income
— 1099-K forms if you received more than $5,000 in business payments 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 time-consuming and may result in additional filing fees from software providers.
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 helps taxpayers proactively address problems rather than finding out about fraud when filing their returns.
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.
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4 Benefits of Filing Taxes Early originally appeared on usnews.com
Update 03/18/25: This story was published at an earlier date and has been updated with new information.
