The Best Time to File May Depend on Your Situation
As New Year's resolutions begin to fade, many Americans begin thinking about filing their taxes. While you should always try to file before the deadline passes (or request an extension) the best time to file may depend on your particular circumstances.
Filing As Soon As Possible
The following are some of the reasons why you may want to file as soon as you receive your end-of-year paperwork:
You're Likely to Get a Refund
If you think you'll get a refund and you have all your paperwork, there may be no better time to file. The Internal Revenue Service (IRS) typically begins accepting income tax returns in mid to late January.
Early filers should consider transmitting their tax electronically, using an online service like E-file.com. This ensures the fastest processing and often a quicker refund. Refunds for electronic returns are typically issued within 21 days, while processing paper returns can take anywhere from six to eight weeks. Taxpayers can cut the processing time even further by choosing direct deposit rather than a paper check. Refund status can be checked via the IRS website (more on this here).
You Have a Basic Return
Most basic tax returns can be filed using the new simplified 1040 Form. There is not as much involved with preparing this form when schedules are not included. Once you have received all your documentation and confirmed the information is accurate, then there may be little reason left to procrastinate. Your return should not change because you wait to file.
If you are receiving a refund, this will allow you to claim your refund sooner. If you do not expect a refund, you'll at least know how much tax you need to pay. Remember, filing your taxes early doesn't mean you need to pay your bill before the April deadline. It just provides you with a forewarning of your tax bill and may allow you to better budget for the payment. Even if you have the funds to pay the bill early, you may not want to pay before you have to. Allow it to earn interest, before it must be paid to the IRS. Even if is just a few extra dollars it's better in your pocket than not.
You Have Concerns About Identity Theft
Identity theft is a growing social problem that is impacting many aspects of our lives. This even includes filing your taxes. In the first 11 months of 2015, the IRS suspended processing or rejected approximately 4.8 million suspicious tax returns. Tax identity thieves attempt to gain information about their targets and file fraudulent tax returns in their names. If a taxpayer files their return early, they can help prevent a fraudulent return from being filed. Once a tax return is received, the IRS will automatically reject any subsequent return from being electronically transmitted.
No matter the reason, preparing your tax return early can feel like a weight has been lifted off your shoulders. If your situation permits, filing early may be your best option.
Waiting to File
There are a number of reasons you may want to wait to file your return, even if you have already received your paperwork. Here are a few of those reasons:
Yet to Receive Your Documents
One of the most common reasons for a taxpayer to postpone preparing their tax return is that they are missing some of their documentation or the documentation they received is not accurate. While most paperwork you receive will be accurate, sometimes employers, mortgagees, investment companies, and universities make mistakes when reporting your wages, mortgage interest, investment income, and tuition costs. If you receive new paperwork after you've already filed your tax return, you'll need to file an amendment. It is always better to wait until you have all of your paperwork and it appears correct before proceeding with you tax filing.
Complex Tax Returns
While people with simple tax returns may not benefit from time to consider their responses, Americans with more complex tax matters may. If this is the case it may be a good idea to start your tax filing early but spend additional time contemplating your responses and reviewing the return. Allotting time to think about your return can provide you with an opportunity to make any adjustments if needed. If you file early, then realize you've made a mistake, you'll need to file an amendment. This can require more time and, if you are expecting a refund, may prevent you from receiving it as quickly. Trying to prepare your return correctly the first time is the best approach.
Only as a Last Resort
In most years, April 15th is the deadline for filing your tax return. Filing on or before this date, will help you to avoid a late filing penalty amounting to 5 percent of your taxes due for every month or partial month your return is late. Occasionally there are obstacles which make it difficult to file your taxes by this date. The IRS understands this and can grant you an extension of time to file your return. However, extension requests need to be made on or before the April 15th deadline.
Note that the extension only gives you more time to file your paperwork, not pay your taxes. When filing for an extension, you should try to include payment on the estimate of taxes due.
As you can see, the best time to file your taxes really depends on your personal circumstances. Consider your situation carefully to help find the best time for you to file.