When it comes to filing your tax return, you have a lot to ponder - should you itemize, or take the standard deduction? Should you file your return on your own, or seek professional help?
One factor you might not have considered is whether you should file early, or wait until closer to the April 15 deadline. Believe it or not, there's strategy at play. Consider the following factors that can affect your filing timeline.
Reasons to File Early
1. You're Expecting a Big Return
If you know you're going to get a big return, file your taxes early. You want to receive your money as quickly as possible, and waiting until the last minute can delay your return.
2. Your Kids Need Financial Aid
You should file your return early if you or any of your dependents require financial aid for college. Colleges, universities, and even state grant programs have deadlines to apply for aid, and you'll need your return in hand to accurately fill out the forms. Plus, if you file your return before you complete the FAFSA, you can use the IRS Data Retrieval Tool to transfer your numbers automatically to your application.
3. To Reduce the Risk of Identity Theft
If you think a criminal won't file a tax return in your name, it's time to think again. According to a 2012 Treasury report, the IRS identified 1.5 million potentially fraudulent returns worth over 5.2 billion in refunds. File your return early to reduce the risk of identity theft.
Reasons to Wait
1. You Owe Money
If you know you're going to owe money to the government, there's no reason to file early. Go ahead and prepare your return so you know exactly how much you owe, then give yourself extra time to plan for the expense. Drill down your budget to find more ways to save, and use the months you have to free up more funds so the financial blow isn't as bad.
2. Your Situation Is Complex
If you're a high earner, have lots of investments, run a small business, or must navigate any other tax return complexity, there's no need to rush the process. Instead, focus on getting your return right. Use an accountant to help you organize your filing, or if you plan to file the return yourself, set aside extra time to double-check your information - you might find additional deductions, or catch a potentially costly error.
3. You Want to Make an IRA Contribution
By contributing to a traditional IRA before April 15, you could qualify for additional tax deductions. You may also qualify for the Saver's Credit, which involves a partial deduction of your employer-based retirement plan or IRA contribution. Both options have income and eligibility requirements, so check the IRS website for details. If you're still putting together funds for your contribution, it may make sense to wait to file your return so you can decrease your total tax burden.
If you do decide to wait to file your taxes, don't wait until the very last minute. Give yourself a buffer of a few extra days so you can avoid the lines at the post office, as well as the last-minute pressure of completing your paperwork on time. You'll be less likely to make a mistake, and more likely to receive a fast return, if you aim to get everything turned in at least a week before the April 15 deadline.
Will you file your return early this year? If not, how long will you wait before you file?
Kenneth Day resides in South Carolina and writes about money management, taxes, and small business accounting.