There are plenty of reasons to drag your heels on filing your taxes in normal years. This year, however, may be unique.
Whether you're getting a refund or have to cut a check, rethink your strategy. Financial experts offer five good reasons to file your 2020 taxes early.
1. Stimulus adjustments
Government stimulus payments were based on your 2018 or 2019 return. If you lost a job or had a significant income decrease, you may be able to claim the Recovery Rebate Credit on the 1040 form for 2020.
“The checks received in the Spring and again more recently were actually tax credits," says Nadine Burns, a certified financial planner with A New Path Financial in Ann Arbor, Mich. “Let's say you and your spouse earned over $200,000 in 2019. You would not be entitled to the stimulus, assuming you do not have children. But if in 2020, your business income fell and you only earned $100,000 together, you would be eligible to receive both stimulus payments as tax credits."
2. IRS delays
The pandemic impacted us all, including the government. COVID-19 protocols and staff quarantines reduced tax return processing capability last year, and it can happen again, especially for paper-filed returns, says Barbara M. O'Neill, CEO of Money Talk Financial Planning Seminars in Ocala, Fla.
“People who badly need refunds may need to wait longer to receive their money at a time when many households are struggling because they lost income due to the pandemic," she says. “[File early to] avoid being at the end of the line if tax return processing gets backed up."
Identity theft is an issue, and scammers may use your information to file false returns to claim refunds.
“When we file a tax return early, we're letting the IRS know that we used our Social Security number," says Michelle Buonincontri, certified financial planner and financial coach in Phoenix. "Anybody that files after us is potentially flagged as a fraudulent return."
4. More time to plan
By filing your taxes early in the year, you'll have more time to come up with money if you owe taxes, says Carl Holubowich, a certified financial planner with Armstrong, Fleming & Moore, Inc. in Washington, DC.
“You don't want to be scrambling the day before to come up with the cash," he says.
If you received unemployment during 2020 and opted not to have taxes withdrawn, the bill may come as a shock, adds Burns. “Instead, know what you owe upfront and start to do something about it, like delivering pizza for extra money," she says. “And if you are still on unemployment, make the changes to have the proper amount of taxes withheld for 2021."
5. Peace of mind
Finally, filing your taxes provides some relief, says Holubowich. “You don't have to rush at the deadline and the stress that comes with it," he says. “If you work with a tax professional, they get busier as the April 15th deadline approaches, so it's best to get on their radar sooner than later."
And that may be the best reason of all.
Find out more about Personal Taxes