The 2021 filing season won't start until Feb. 12 this year.
That's frustrating for the millions of taxpayers who traditionally are early return filers. It's more frustrating for those taxpayers who, because of COVID-19 complications (which also created this year's filing delay), are really counting on their tax refunds to cover expenses.
This year's later than usual filing start means it is even more important to get those 1040 forms into the Internal Revenue Service as soon as the agency will take them.
If you're still debating about when to file your taxes, here are seven reasons you might want to consider completing your Form 1040 sooner.
1. To get COVID-19 relief payments.
Millions of people got COVID-19 economic impact payments (EIPs) in 2020. Most of them got the full available amounts. That was $1,200 per person in March (plus $500 per qualifying child) and $600 per person in December.
But most is not all. Filing now is how you get any payment amount you were shorted last year. Here's how and why that might have happened.
The EIPs technically were advance payments of a new tax break, the Recovery Rebate Credit (RRC). Because folks were in dire financial straits, Capitol Hill directed the IRS to send the payments out as soon as possible using prior tax year data.
That was a good idea, but that old filing information didn't necessarily reflect the correct, current income data for 2020. And since the EIP amounts were based on — more specifically reduced in many cases due to — adjusted gross income (AGI), some people didn't get the full amount for which they qualify using their accurate income info.
You can get any RRC amount you missed out on by claiming it on your Form 1040
You can find more on this claim process at process in my earlier post, If you don't get your COVID money by Jan. 15, you'll have to claim it on your 2020 tax return. The Form 1040 instructions, which are cited on the highlighted line 30 above, contain a worksheet (page 59 of that PDF). I suggest, however, that you let your tax software or tax preparer figure this out for you.
The main thing is to get all the coronavirus pandemic economic relief amounts for which you qualify. Remember, it's a tax credit, which means if you do owe Uncle Sam anything, the credit will cover that bill dollar-for-dollar.
Even better the RRC is a refundable tax credit. If your credit amount is more than your tax bill, you get the excess credit as a refund.
Plus, if/when Congress approves more COVID-19 relief, early filing means your up-to-date info, from financial circumstance to filing status to where to send the money (directly deposited to a bank account is the fastest and safest method), will be on the record. That should assure you get the next EIP ASAP.
2. To get your refund sooner.
Getting a tax refund is year-after-year a big reason so many folks file their taxes as early as they can. As noted earlier, the financial difficulties caused by COVID-19 make receipt of those refunds even more critical.
I could go on (and on and on) about how it's better to adjust your withholding and get that tax money in each paycheck throughout the year, instead of letting the Bank of Uncle Sam hold onto it for months without paying you any interest.
But I get it. Some folks just aren't good at money management. Heck, some of them are my relatives! They need the untouchable forced savings account. And with today's minuscule interest rates, owners of basic bank savings accounts aren't getting much of a return. So, I'm not going to preach, at least not any more in this post.
If you are due a federal tax refund, your best move in addition to filing as soon as you can is to do so electronically and have the refund directly deposited into a bank or other financial institution account. The IRS says this combination should mean your refund will show up in that account within 21 days of processing.
Sometimes, though, the turnaround is faster. The IRS, even with delaying this year's filing season start into mid-February, says its hopeful that refunds will start going out, as long as there are not issues with your return, in early March.
A quick note on those potential issue. Remember that the IRS is still taking closer looks at 1040s that include the Earned Income Tax Credit (EITC) and/or the Additional Child Tax Credit. These claims this year also could slow down things a bit.
But it doesn't hurt to go ahead and get into the queue for return processing by electronically filing your return as soon as you can. The tax software manufacturers will hold early prepared returns and then transmit them to the IRS when it opens its electronic doors on Feb. 12.
If your adjusted gross income is $72,000 or less, you can prepare your taxes and file for free at, where else, Free File. The online tax preparation and e-filing option already is open for business.
Still, getting your return with these credit claims into the IRS sooner will get you at the front end of that delayed refund issuance line.
3. To beat tax ID thieves to the punch.
The IRS and its Security Summit partners have made good progress in recent years in reducing tax identity theft and refund fraud. The agency is even allowing all taxpayers to apply for an Identity Protection Personal Identification Number, or IP PIN, this year.
Among those steps is increased filing filters to help catch any suspicious-looking 1040s. The downside of this added security is that it naturally slows things down. So you want to get your return in soon so it can be OK'ed and moved through the processing line.
By doing so, if tax identity thieves try to file under your name and Social Security number, the crooks will discover that you beat them to the tax punch!
If, however, a criminal falsely files a return as you, when you do get around to sending in your legitimate tax return, the IRS will kick it back to you since its records will show that "you" have already filed and been sent "your" refund. Clearing up the fake tax filing mess can take time, time that you're without your legal refund.
Instead, prevent that by filing before the crooks do.
4. To figure out how to pay what you owe.
Most folks who put off filing do so because they know they owe taxes. But filing early actually can help in this situation.
The sooner you fill out your Form 1040, the sooner you'll know exactly how much is still due the U.S. Treasury.
The tax bills can be because taxpayers didn't adjust their withholding to take into account law or family circumstance changes. They also could be because you didn't realize that your gig jobs and unemployment benefits that helped you (almost) make ends meet when the pandemic forced your regular workplace to close.
Whatever the reason for an unexpected tax bill, when you're armed with specific tax dollars due knowledge, you can figure out how to come up with the cash. Do you need to raid an emergency savings account? Or borrow from a family member? Or put it on a credit card (don't forget to take those fees into account!)? Or set up an installment payment with the IRS?
Remember, too, that you don't have to send that tax due amount when you file your form. You can submit your 1040 early and wait until the April 15 deadline to send in the money you owe.
When you do get around to delivering the due tax amount, you can do so electronically via the various e-payment options accepted by the IRS.
Or if you decide to send your tax payment via check or money order after filing your forms, you'll need to complete and include with your payment a Form 1040-V payment voucher. Just make sure it's got a snail mail postmark by April 15 so the IRS will count you as timely filed and not charge you any late-payment penalties.
5. To find a tax professional.
OK, you looked at all the coronavirus tax complications created last tax year and yes, you've decided you need professional help. Finding the perfect educated, experienced tax professional to finish (or start) your return is easier when you do your searching earlier in the tax season. As the filing deadline nears, it's generally tougher to get on a good tax pro's schedule.
In fact, as filing crunch time nears, if you can hire the tax pro you want, he or she probably will have to file an extension for you because they are working on the returns of other clients who came to them earlier.
There's also the basic economics of hiring a tax pro earlier in the season. Most tax preparers will charge more to work on returns as the filing deadline nears.
A quick side note here from my tax pro pals: Even if you do hire a tax preparer early in the year, that person may advise you to wait to file. There could be tax matters on which they're waiting for IRS clarification. Or they might need to give your situation a closer look. Once you've gone to the trouble to hire a reputable tax pro, trust them. If they say wait, then wait.
If you're worried about the cost, consider that with all the recent law changes, particularly in connection with the pandemic, any fee you pay a tax preparer likely will be returned in the tax savings that person can find you.
Or, as genius' physicist Albert Einstein once reportedly observed, "The hardest thing in the world to understand is income taxes."
Who are we to argue with the man who gave the world his groundbreaking theory of relativity about time and space?
And while I'm nowhere near Einstein in either scientific or tax realms, I stand by my personal theory of tax piece of mind, which is life is a lot less anxious when you know your taxes are being taken care of by a capable professional.
6. To get to work on your state taxes.
I live in Texas, one of the handful of states that doesn't impose any type of income tax. But most Americans have to also file state tax returns in additional to their federal 1040s.
In most of these tax-collecting states (and the District of Columbia), your federal return is the foundation for filing your state and local taxes.
The sooner you finish your federal return, the sooner you can tackle your state and local tax counterparts and get any refund you might be due from those tax jurisdictions.
7. To clear the tax deck and start focusing on your 2021 taxes.
I know, you just want to be done with your current tax return and take a break. If only.
Taxes always force us into a balancing act. At this time of year, we're working on last year's taxes while also trying to make moves this year to cut the amount we'll owe when we file this year's taxes next year.
The sooner you can be done with the 2020 tax year, the sooner you can focus this year's necessary tax actions, some of which show up every month in the (shameless plug alert!) ol' blog's right column as monthly Tax Moves or as Tax Tips.
Your 2020 tax year return results also will make it clear whether you ended up in a good or bad tax situation, and will offer guidance on tax steps you need to take for the 2021 tax year.
So what are you waiting for, aside from IRS' Feb. 12 official opening of tax-filing season? Get to work on that 2020 return now!
An earlier version of this story appeared on Jan. 9, 2020
You also might find these items of interest:
- 4 tax moves to make in January 2021
- Tax statements you need to file your 2020 return
- White House stimulus letter is an official IRS tax document you need to save