February 16, 2024

Should You File Your Taxes Early?

The best part about doing your taxes is being done with them, right?

But is it smart to file income taxes early?

Answer:  It depends on what your situation is and how you rate the importance of tax filing goals.

While most people would prefer to never file tax returns, the consequences of disobeying laws would be more painful…and so we do it.

Something still stuck in my head from childhood is a phrase my father would preach:  “If you’re going to do a job, do it right the first time.”

If you must file a tax return, do it right.

Some goals that a strategic individual should consider with the tax return filing process are:
  1. Don’t end up in jail
  2. Don’t pay $1 more in tax than is legally required
  3. Mitigate the risk of an audit
  4. Mitigate the risk of having to amend the tax return (do it right the first time)
  5. If you are expecting a refund, get the money in your hands as soon as possible
  6. Get it done in time to meet any deadlines to apply for a mortgage, student loan, or other financial endeavors that may require your tax return as documentation

Once you have prioritized which goals above are most important to you, review the insights below and decide the filing timeline that is best for your situation.

Key Insights
  1. Getting an extension and filing later does not increase the risk of an IRS audit.  In fact, some historical data suggests that the audit rate is slightly lower for those who file later (within the extension period).  I don’t believe this is a meaningful enough difference to dissuade people from filing early.  But it does debunk a myth held by some taxpayers that getting an extension increases IRS audit risk
  2. If you have a simple tax return and usually get a refund, it probably makes sense to file as soon as possible.
  3. Filing early can mitigate the risk of identity theft, where someone files a tax return in your name to get a refund.  If your tax return is filed before the fraudster attempts to file, the fraudulent return will get rejected by the IRS.  There is a safeguard available to prevent this, regardless of when you file:  Get an IRS Identity Protection PIN
  4. One of the major reasons to file later is if you have to wait for additional tax documents to come in.  Whether it is a K-1 or brokerage statement, certain tax forms may not be made available to you until after April 15th.  Even if you think you have all the documents, corrections can be made and sent to you later.  Every year, I encounter corrected 1099s being sent to taxpayers by brokerage companies.  If the tax return was already filed using the original 1099 and then a corrected form is sent to you, you might have to file an Amended Tax Return, which makes the process of getting your returns filed correctly less pleasant.
  5. Another benefit of waiting to file is that tax laws change a lot…even retroactively.  For example, there is currently a bill (as of 02.16.2024) already passed by the House and awaiting a vote in the Senate that would retroactively change some tax laws for 2023 which could have a significant impact on many individual’s 2023 tax returns¹.  Filing early might require an amended tax return or overpaying your taxes if the bill is passed.
  6. Commercial tax preparation software (that CPA firms like us use) is typically not 100% ready to use until April.  It is fully functioning for 99% of tax situations…but the remaining 1% can affect many tax returns.  Every year brings about tweaks to the enormous tax code and updated tax forms. Each software vendor has to implement the updates and then get every aspect of their software approved by the IRS and each state…every year.   Trying to force an early filing before tax preparation software is fully updated could result in dreaded IRS notices or overpaying your taxes. 
My general advice is that people with more complex tax returns (business ownership, K-1s, substantial brokerage accounts, etc.) should not be in a hurry to file.  There are so many variables out of your control…the one thing that can be controlled is to let the uncertain variables become more certain with time.
Important Reminder:  Even if you file an extension, you should pay 100% of your estimated tax liability by the original filing due date (ex. April 15th) to avoid late payment penalties.
Wayfinder CPA will advise clients individually, based on their situation,  if we believe it is in their best interest to delay filing.  So, there is no need to decide on your own.  We encourage everyone to send in their tax documents as soon as all of them are available.
Chris Naquin
Wayfinder CPA


¹ The Tax Relief for American Families and Workers Act would retroactively increase Child Tax Credits, allow 100% Bonus Depreciation, and fix the R&D Tax Credit for 2023, among other things.  IRS Commissioner, Daniel Werferl, recently stated that the agency stands ready to implement the changes proposed by pending tax legislation and that taxpayers who would be affected by changes to the child tax credit will not need to amend their tax return.  Any extra refund from child tax credit changes that is due to taxpayers who already filed will automatically be calculated by the IRS and sent to the taxpayer.

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