Wednesday, January 19, 2011

Does Filing My Tax Return Early Make Sense?

Although individual income tax returns don't have to be filed until April 15, taxpayers who file early get their refunds a lot sooner. The IRS begins accepting returns in January but does not starting processing returns until February. Determining whether to file early depends on various personal and financial considerations. Filing early to somehow fly under the IRS's audit radar, however, has been ruled out by experts as a viable strategy.

Required documents

Filing a return early may not be practical for many taxpayers because they do not yet have enough information to accurately fill out their return. If you have not received information returns, like Forms 1099 or Schedule K-1, or if you are missing documents or other information you need to complete your return, it may be difficult, if not impossible, to accurately prepare your tax return. For example, employers do not have to provide wage statements to their employees until January 31 (although an employer can provide Form W-2 sooner if an employee terminates employment). The IRS requires this statement to be attached to your return (either in paper form or electronically when filing online).

Information returns also do not have to be furnished until January 31. These include, among others, the forms for dividends, interest income, royalty income (Form 1099-MISC), stock sales (Form 1099-B), real estate sales (Form 1099-S), state tax refunds (Form 1099-G), mortgage interest paid (Form 1098), and distributions from pension plans (Form 1099-R). Waiting until you receive all the information needed to complete your return accurately also lessens your chances of making mistakes, which can call attention to your return by the IRS. The IRS will not process your return electronically until it is accurate.

Last year's return

You'll also want to take a look at your 2009 tax return. Did your circumstances change in 2010? Changes such as starting a new job, retiring, getting married, having a child, and so on, have important tax consequences. Congress extended, enhanced and created new tax incentives in 2010 under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act) that could generate a larger refund. Another important consideration is the current economic downturn, which may have generated significant tax losses in many investment portfolios.


If you have all the information you need to completely and accurately fill out your tax return, and you are owed a refund, filing early is attractive. The sooner you file, the sooner you'll see your refund check from the IRS. If you file your return electronically and choose to have your refund directly deposited into your bank account, the IRS typically will issue your refund in as few as 10 days.

If you owe money, however, you may want to wait until April 15 to file. Alternatively, you can file early online and date your tax payment to be released on April 15. If you have the funds to pay what you owe and you pay early, you could lose out on keeping the money invested and earning interest until April 15.

Also remember, no matter how early you file your return, the three-year statute of limitations during which the IRS can question your return and assess more tax doesn't start to run until April 15. Please contact our office if you have any questions about filing early.

Circular 230 notification - Any U.S. federal tax advice that is contained in this document was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.

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