Filing Your Taxes Early: What You Need To Know
Dec 23, 2019, 09:20am
Ready to get your taxes squared away and get your hands on your refund (and maybe avoid getting a tax refund loan)? It’s possible you’ll make some progress early on, but you need to make sure you have all the required paperwork for your return before you pull the trigger and send your details to the IRS and your state.
This includes W-2 forms from each employer you’ve had in the past year, or 1099-MISC forms from your clients that are required to send them if you’re self-employed, says financial planner and tax advisor Sean W. Mullaney of Mullaney Financial & Tax, Inc. While you may receive these forms early, employers and clients have until the end of January 2020 to get your W-2 or 1099 postmarked and in the mail for the 2019 tax year.
Once you have everything you need in order to file, you can get the ball rolling and submit both your state and federal tax return — that is, provided the Internal Revenue Service (IRS) is ready to accept your return on its side. Unfortunately, the IRS hasn’t yet announced when it will begin accepting mailed returns and returns by e-file. However, the agency is usually on board and ready to accept digital returns sometime toward the end of January.
Filing Taxes Early? Here’s What To Watch Out For
According to Mullaney, the most important “gotcha” to watch out for when filing early is the chance you don’t actually have all the information you need for your return. Maybe you received your W-2 from your only employer but you forgot about the 1099-INT you need to pay taxes on dividends earned in your brokerage account, for example. Or perhaps you’re self-employed and you let one of your major clients fall entirely off your radar.
Either way, filing your tax return without all the paperwork required can be a major hassle. You can take steps to amend your tax return in order to update any missed information using a special tax form called 1040X, but this will just add another layer of hassle and stress to your life. Not only that, but you could face additional interest and potentially even penalties if your updated return leaves you owing more tax than you originally reported. You’ll get a bill in the mail from the IRS in that case, which you can dispute if you believe any penalties charged are incorrect.
Mullaney says that, in some cases, certain tax-related paperwork may need to come after January 31st, and even close to the tax filing deadline, which is April 15th, 2020. If a particular document will be delayed past late March, you may want to strongly consider filing an extension to obtain six additional months to file your return, he says.
When Will You Get Your Tax Refund In 2020
Once you are finally able to file your tax return with the government, you shouldn’t have to wait long to see your money deposited in your bank account. The IRS has indicated that, in most cases, refunds should take less than 21 days to process. However, there are situations where processing your refund could take significantly longer.
“This is particularly true in cases of identity theft, says Mullaney, reflecting on the fact that tax-related fraud is currently on the rise. According to the Insurance Information Institute (III), tax fraud was the third most common identity theft fraud committed in 2018, only behind credit card tax fraud and miscellaneous identity theft cases.
“One way to protect yourself from identity theft holding up your tax refund is to file for an IRS identity protection personal identification number (PIN),” Mullaney notes. “The IRS will accept PIN applications from residents of 19 states and the District of Columbia starting in January.”
Other factors that could delay your return include any errors uncovered by the IRS, any missing parts of your return, and claims for the Earned Income Tax Credit or the Additional Child Tax Credit.
Tax Preparation Steps To Take Now
If you want to get a jumpstart on your taxes this year, there are several steps you can take now to make the process easier later on. Just remember that filing your taxes should wait until you’re entirely sure you have the required documentation and all your facts straight.
Here are some steps you can work on while you wait:
- Make a list of documentation you need. While you wait for clients or employers to send tax documents, you can get started by creating a list of everything you’re waiting for. In addition to documents that prove your income, you’ll also want to list documents related to tax liabilities you might have and deductions you plan to make. For example, list all of the accounts that earn interest or dividends you’ll need to pay taxes on. Also list any paperwork you will need related to deductions you normally take if you itemize on your taxes, such as a statement from your mortgage company that shows how much interest you paid on your mortgage for the year.
- Round up receipts. If you deduct business expenses, medical expenses, or any other expenses on your taxes each year, it’s crucial to have a handle on your receipts. Take the time to find all the receipts you’ll need to file your taxes for the year, organizing them by category. Once you have all the receipts required for your tax return, store them in separate envelopes until you’re ready to dive into the nitty gritty of your tax filing.
- Find last year’s tax returns. Most people have similar tax returns with much of the same required documentation year after year. If you’re looking for a way to get started gathering this year’s paperwork, last year’s tax returns can help remind you of deductions you’ve taken in the past.
- Consider working with a tax preparer. If you’re feeling overwhelmed by the mere thought of filing taxes on your own this year, consider working with a professional who can take on the grunt work for you. Some tax preparers even offer tax refund loans for consumers who don’t want to wait for their money. Of course, a third party will have much better luck executing a perfect tax return if you’ve followed all the other steps on this list and gathered everything you need ahead of time.