When Should I File my Income Tax Return?
Each year, millions of Americans file their income taxes with the federal government to reconcile their tax bill. While tax season comes and goes every single year, the best time to file your tax return depends on several factors. Most of which have to do with what kind of documentation you need and your personal situation. The IRS generally starts accepting returns in late January, with the typical annual tax filing deadline being April 15th. There is no right or wrong answer as to when you should file your personal income tax return, but there are several factors to think about. Below, we will look at different filing times and best practices to consider.
Early Filing (January-February):
- Expecting a Refund: Filing early can be to your advantage if you expect a refund and your taxes are simple. W2 income, your Social Security income and retirement income tax documents typically are required to be generated and provided by January 31 of each year. These documents are provided early and are conducive for individuals to file early as corrections are rare for these types of tax documents. These are also the most simple returns to be filed. The IRS generally starts processing returns toward the end of January, but keep an eye out for news and updates on the IRS website. Don’t forget to sign up for direct deposit to receive your refund even faster.
- Peace of Mind: Filing early can reduce the stress and anxiety of that dreaded April 15th deadline. This also prevents potential delays if you are using the assistance of a tax professional who may be extremely busy as tax season drags on. We all know people who wait until the last minute to do anything!
- Reducing Fraud Risk: While it is rare, fraudulent returns do happen. By filing early, you may be filing your return before a criminal can file a return in your name.
File Closer to the Deadline (March-April):
- Complex Tax Situation: If you have a complex tax situation or many different documentation sources that need to be gathered. It would be prudent to wait and file closer to the deadline. Typical documents that require more time would be 1099’s and K1’s. It is also possible you will need several revisions as new information becomes available.
- Tax Payments: If you know you will owe, you might want to hold onto your money longer and file closer to the April 15th deadline. This will allow you to use your money for as long as possible. You will not want to file an extension in this situation, as tax payments are still due by April 15th.
- Need More Time: If you need more time to gather your documents or want to review your tax situation, waiting would be a good idea.
General Tips and Tricks:
- Tax Documents: Ensure you have ALL required documents before filing. These would include W2s, 1099s, K1s, and other relevant documents.
- Reference Previous Year: Unsure of what you need? A good starting point would be to reference your prior year's return to get an idea of what was collected last year for documentation.
- Extensions: If you need more time, you can always file an extension. There's no reason to stress yourself out. But be aware that any taxes owed are still due by April 15th. If you are expecting a refund, this is a nonissue.
- Tax Software/Professional: Consider using tax software or consulting with a tax professional to ensure your return is accurate. Even better, if you have been using the same software or professional for years, they will often be able to pick up on missing documentation or information as they will have from the prior year’s returns.
- E-File and Direct Deposit: Using electronic filing (e-file) and opting for direct deposit can expedite the processing of your return and receipt of any refund. While some still file by hand and mail directly to the IRS, in my experience, this often causes more issues and delays. There may also be late fees and penalties if your return is not postmarked by the deadline. This can be costly as well as add lots of stress and frustration to your tax-paying experience.
- Same Day Refund: Be careful; some income tax offices will offer same day refunds in exchange for a nominal fee. They will assign your refund to themselves and pay your refund out of pocket to you the day you file. While this is not ideal, it is an option if you need your refund immediately. However, your best bet would be to wait for your refund directly from the federal and/or state government.
The above gives a general overview of best practices. However, in my opinion, the best time to file is late March or early April. Financial institutions are often working on massive amounts of data and tight deadlines to get tax documents out. It is not uncommon to have one or more of your tax documents re-issued with corrections. One of the more frustrating things for us as individuals is to finalize your return and then have one corrected form received at the end of March that will require you to file an amended return. Save yourself the headache, time, and money. Be patient, gather all required documentation, and keep watching the mail throughout March for those pesky corrected documents. Most institutions will publish deadlines and dates for correction cycles. It is a good idea to check with each provider for their schedule so you have an idea of when to expect not only your first round of tax documents but any corrections that may come. If you use a tax professional, it is a good idea to reach out to them in the early part of the year to get a date scheduled for early April. This will help you avoid the headache of not being able to get an appointment, and you will be confident in making the tax-filing deadline!
Written by Kyle Cooper