There’s one obvious reason to get a jump start on your taxes: the earlier you file, the earlier you can expect the IRS to issue your refund. Nearly 3 out of 4 taxpayers received a refund in 2015, according to the most recent IRS data. The average payout was $2,797.
“For a lot of people, it's bigger than their regular paycheck,” said Lisa Greene-Lewis, a certified public accountant based in San Diego. “It allows people to get ahead on their bills, pay down debt and invest some of that money toward retirement.”
Last-minute tax filers will get an extra weekend this year, as the tax filing deadline is set for Monday, April 18, instead of the normal due date of April 15. But most people don’t procrastinate, according to Greene-Lewis, who is also a tax expert for tax filing software company TurboTax. Most people file their taxes about now, she said.
Whether you expect a refund or not, it’s a good idea to get started early so you know where you stand. “Try to complete your return just as soon as your documents are in,” said Dan Olson, a certified financial planner who specializes in tax planning. “If it looks like you owe money then you probably won’t have to pay until the deadline, but if you’re going to get a refund, then go ahead and file,” he added.
Olson advises clients to get started early to protect against the increased risk of identity theft later in the season. Custodial parents may also benefit from filing earlier, he added, so that they receive the appropriate tax benefits, such as claiming head of household status and the earned income tax credit, if they qualify.
“What’s happening behind the scenes is the IRS is matching social security numbers,” said Olson. "That’s their first line of data integrity analysis." By filing early, it prevents fraudsters from using your social security number to steal your tax refund, or a noncustodial parent from falsely claiming deductions and credits associated with their children.
Even those who owe taxes can benefit from filing early. Certain tax moves, such as making an IRA contribution for 2015, can reduce your total tax bill. “Don’t forget about things you did last year that may help, like charitable contributions, job search expenses or if you moved for a job,” said Greene-Lewis. “If you still owe, the IRS has an installment agreement where you can pay your debt over six years. So, they’re willing to work with you,” she added.
At this point, employers and financial institutions should have sent out all W-2 and 1099 forms. Freelancers should review their 2015 invoices and statements to make sure they report all sources of income, no matter how small. Greene-Lewis recommends establishing a system to organize your tax forms as you receive them. Once all the documents have arrived, it’s time to get down to the business of filing.
In 2015, more than 50 million Americans did their own taxes and filed them online, an increase of 5.1 percent from 2014. Even tax preparers are more likely to submit tax returns online. Approximately 85 percent of all 2015 returns were filed electronically.
Filing electronically is a good thing for taxpayers and the IRS alike. It reduces the possibility of mistakes and speeds up processing times on both ends. Advances in electronic tax software have made do-it-yourself tax filing much more accessible. “It’s guided by prompts so you’ll get the benefits you deserve and pay neither more nor less than you have to,” Olson said.
That’s in sharp contrast to the confusing paper tax forms and instruction booklets of the past. Technology helps eliminate math errors and incorrect inputs that can result in penalties and fees. Even an accidental underpayment of your tax bill will result in a fine of 20 percent. But overpaying happens too. “Don’t make up stuff, especially if it’s income. If you didn’t earn any income, don't put it down,” said Olson. “You’re not obligated to make a contribution.”
Those who file online can expect to receive their refund within 3 weeks or less, and status tracking is available on the IRS Where’s My Refund tool within 24 hours of submitting the return. Mailing a paper return doubles the amount of time it takes to get a refund, as it takes the IRS six weeks to process. Paper filers aren’t able to track the status of their refund until 4 weeks after sending in their return.
Millions of Americans qualify to file electronically for free. “If a W-2 is under $62,000, you can file for free on any number of sites. It’s relatively straightforward,” said Olson. The best place to review the available options is through the IRS free file website. Not all tax software programs are the same, so it’s important to compare requirements and features. If you have to file a state tax return, look for a service that will include that for free as well.
Even those who earned a small amount of money in 2015 should take advantage of the free file option, rather than not filing at all. “You won’t know if you can get a refund unless you actually prepare the tax return,” said Olson.