It Pays to File Taxes Early This Year, but Not in January. Here’s Why

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Filing too soon could hurt you. 

At this point of the year, you may not really have filing taxes on the brain. But a lot of people aim to file their taxes in January for one big reason — they want their refunds sooner.

The IRS will begin accepting tax returns on Jan. 23 this year. And you may be inclined to submit your return at the end of the month rather than wait.

But while filing your taxes early is definitely a good idea, you could be better off pushing your filing off to February, or even some point in March. Here’s why.

Do you really have all of the paperwork you need?

There are many different tax forms you’ll need to get your return completed. Some of those forms may have been sent to you already, or they might already be available online.

For example, if you earned money in your savings account last year, you’ll need to report that income. But you may be able to log into your bank account right now and download the form you need to get your return done. The same might hold true for your brokerage account.

But if you earned income on a freelance basis last year, you may not have the documents needed to complete your return just yet. Any company that paid you $600 or more in 2022 must issue you a 1099 form. But the deadline for companies to send out 1099s is Jan. 31. And sometimes companies are notoriously late with 1099s.

So either way, those forms may not show up for you until February. If you file your taxes in January without that information, you might end up with errors on your return, which could result in you having to amend it. And that can be a hassle. It could also lead to a higher bill if you use a tax preparer.

Similarly, certain types of private investments issue a K-1 form that needs to be factored into your tax return as well. But K-1 forms tend to get held up even more so than 1099s. In fact, it’s not uncommon to receive a K-1 form in mid- or late March. So if you know you own investments that are subject to this type of reporting, you might as well sit tight on submitting your tax return.

You can get started while you’re waiting to file

It could work to your benefit to hold off on submitting your tax return until February. But that doesn’t mean you can’t get the ball rolling in January.

This month is a good one to gather the receipts and documents you’re already in possession of, and reach out to your accountant or tax preparer to see what additional information they might need from you this year. You can also try to set up an appointment to meet with your tax professional so you have your pick of options. Wait a few more weeks, and you may have to take an appointment that’s not as convenient.

An early tax filing could be your ticket to an early refund, and that’s a good thing. But waiting another few weeks to submit your taxes could work to your advantage.

Our picks for best tax software

Our independent analysts pored over the perks and user reviews for the most popular tax provider services to land on the best-in-class picks to file your taxes. Get started by reviewing our list of the best tax software.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More