Filing your return early and sitting back while others rush to meet the April 15 deadline has an undeniable reward: Three out of four taxpayers got an average $2,302 back last year after filing returns for 2006. So why wait?
Well, it turns out that being the early bird, whether you do the return yourself or farm it out to a paid preparer, can have a downside.
Investors who hurry to file are often taken aback when they later get corrected statements of taxable income from their brokers or others, an occurrence that accountants say has become more common of late. That new information could mean filing an amended return or having the IRS ask for more cash or revoke part of a refund after it checks your return.
Documents to complete a return when tax shelters are involved may not even get to investors until the April filing deadline or later, which can require seeking an extension of the deadline.
Waiting a bit to file can ensure that you have all the wage, interest, and other income and financial data you need—and time to track down what's missing. "It's not always advisable, or possible, to file as soon as you may want to," says attorney Barbara Weltman, an editor at the J. K. Lasser tax guide.
People expecting refunds are traditionally the most likely to file early while those owing money are the most likely to file at the deadline, says IRS spokesperson Peggy Riley.
But even when you're due a refund and all your financial information is in hand, taking it slow on all but the simplest return can have a benefit. Waiting into early or mid-March to file is not necessarily procrastination. Hurrying to finish up in minimum time can make you careless, cautions CPA John Battaglia, at Deloitte Tax. "You may not leave enough time to be sure you find all the deductions and credits to which you are entitled," he says.
Hiring a preparer doesn't relieve you of responsibility. The preparer might feel you out about breaks that could apply, but it's to your advantage to be prepared with receipts, supporting documents, and questions about benefits to consider. It's ultimately up to you to make a preparer aware of your situation.
Clearly, when doing a return yourself it can pay to complete the return, then set it aside for a second look before submitting it to the IRS, advisers say. Holding back on all but the simplest early-completed returns allows for the not infrequent updates and fixes to the early versions of tax software that both paid preparers and many do-it-yourselfers use, notes preparer Leon Rudman, past president of the Massachusetts Society of Enrolled agents.
The IRS posts clarifications and corrections to its forms and rules at its website, in the "What's Hot" topic of the forms section.
On another front, taxpayers using certain forms—including those for education and energy credits—were told by the IRS to hold off filing 2007 returns until IRS computers could be fully reprogrammed to reflect emergency legislation last December to curb the expanding alternative minimum tax. They have now been given a green light.
No matter when you file, a refund can be speeded if you file electronically. The IRS says that refunds on electronically filed returns can take two or three weeks, half the time of a mailed return, with the fastest turnaround when you have a refund directly deposited to a bank account.
Refund anticipation loan? You might get a refund immediately or within a day or two, but the cost of that short-term loan against your refund, offered through tax preparers, can be steep considering the modest time shaved off a normal wait with electronic filing and deposit.