Should You File Your Taxes Early This Year?
- If you expect a tax refund or to qualify for COVID stimulus money, file your taxes as soon as possible.
- Filing online could get your money to you faster.
- Even if you owe the IRS, filing early can save you interest and penalties.
If money is tight in your household right now, it may be helpful to file taxes early this year. Let’s look at some of the benefits of filing early, how soon you can file, and things that might delay your tax refund. We’ll also go over how the CARES Act stimulus payments and charitable contribution benefits could affect your 2020 taxes.
How and when to file taxes
If you’re new to filing taxes or just want a quick refresher, here are the essentials.
Tax filing deadlines
The most common deadline for filing taxes is April 15. That is the deadline for individual and C corporation returns. Partnerships and S corporations must file a month earlier, by March 15. Any individual or business can file an extension that will extend the filing deadline to October 15, but you must fill out an extension request by the normal filing date. More on that in a bit.
How to file your taxes
There are two ways you can file your taxes:
Mail. You fill out physical tax forms and mail them to the IRS. The IRS estimates that it takes about 6 weeks for a return to make it through the postal system and then be entered into the IRS system.
E-filing. You file your taxes electronically using either the IRS Free File system or a commercial software like TurboTax, and your return is delivered immediately to the IRS. This method also allows you to set up direct deposit of your refund into your bank account.
Standard deduction vs. itemized deductions
When you file taxes, you can claim deductions (expenses) that lower your taxable amount. Basically, your income, minus deductions, equals your taxable income, and then you are taxed on a percentage of your taxable income. You can choose to either list out all your deductions—charitable donations, healthcare expenses, etc.—or you can choose to take the standard deduction, which is a flat rate.
Now that the basics are covered, let’s get to that very important question …
How soon can you file your 2020 tax return?
You can technically file your taxes as early as January 1, 2021. However, the IRS won’t accept electronic filing until later in the month. Because of the inefficiencies of manual processing and snail mail, which is especially slow now due to the postal service being overwhelmed with holiday mail during the pandemic, it will probably still be faster to wait a while to file electronically than submitting your return by mail.
However, you can get a head start now by gathering all your tax documents and financial information so that you’re ready to fill out the forms and submit your return as soon as the IRS starts accepting returns.
Next, let’s go over some of the reasons why you might want to file your taxes early.
5 reasons to file taxes early
There are several benefits to filing your taxes well before the spring deadlines:
Get your refund months earlier. The sooner you file, the sooner you can get your refund. This can help with essential expenses like rent and food, give you a savings cushion going into the spring, or help you make ends meet if you’re going through a period of unemployment.
Have more time to pay your taxes. If you think you’ll owe money, you’ll have more time to figure exactly how much you’ll owe, and how to pay your tax bill.
Avoid having to file an extension. Waiting until the last minute can cause you to miss the standard filing deadline, so getting a head start on your taxes means you don’t have to worry about the extra steps involved with being late.
Save on interest and fees. If you owe the IRS money, it is due on the standard deadline, even if you file an extension. By filing early, you can more easily avoid being charged interest and fees on what you owe.
Prevent tax return identity theft. If someone else gets a hold of your social security number, they can possibly file a return in your name to try and collect your refund.
However, even if you file early, it’s impossible to know exactly when you’ll get your refund. Next, we’ll look at how long it might take, and issues that could possibly delay your refund.
How soon can you receive your 2020 tax refund?
According to the IRS, returns are typically processed within:
21 days for electronic returns
6 weeks for mailed returns
However, if you e-file as early as you can, possibly as early as January 25 (or even sooner), according to estimates by CPA Practice Advisor, you could get your return between February 5 and February 12.
Be careful not to count on getting your refund that soon, however, because you may encounter one of these situations:
Claiming the Earned Income Credit (EIC), Additional Child Tax Credit, or American Opportunity Credit, which will delay your entire refund until mid-February.
Waiting on employer(s) and companies to send W2s and 1099s, which they have until February 1, 2021 to send out.
Receiving questions from the IRS about your return.
Ways to speed up processing of your refund:
Get your W2 and 1099 information electronically where available, such as on your employer’s payroll website or online banking systems.
File your return electronically instead of by mail.
Sign up for your refund to be directly deposited into your account for free.
Be wary of companies offering loans or cash advances on your tax refund. While there are a few legitimate companies that offer this, there are many scams in this arena, so be sure to read the fine print on any offer and stick with reputable companies that you know. You can also protect yourself by checking the IRS website for known tax scams.
Twenty-four hours after you file, you can use the IRS’s Where’s My Refund? page to track the status of your return. You’ll need:
Your social security number or ITIN
Your filing status
Your exact refund amount
Now let’s turn to how the CARES Act could impact your 2020 taxes.
Are stimulus payments taxable?
If you didn’t get the stimulus payment in 2020 or didn’t get the full amount due to your income level, you can get it by claiming the Recovery Rebate Credit on your 2020 tax return.
Charitable deduction with the standard deduction
Another, lesser-known tax relief clause in the CARES Act is a charitable deduction change. It allows taxpayers who made donations to charity in 2020 to take a charitable deduction of up to $300 without having to itemize deductions. In other words, if you choose to take the standard deduction, you can still claim an extra $300 for cash contributions made in 2020 to qualifying organizations.
Using your tax refund to help pay down your debt
If you’re unable to pay more than the minimum payments on your credit cards, you may be thinking about using your tax refund to pay down debt. If you have over $10,000 in debt and are going through a financial hardship, talk to one of our Certified Debt Consultants about how you can maximize the use of your tax refund in our debt relief program. Every dollar counts, so it makes sense to stretch it as far as possible.
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