You have until May 17 to file your taxes, but processing your return as early as possible, rather than waiting, can save you from a slew of headaches.
You have until June 15 in 2021 to file your 2020 taxes if you live in Texas, Louisiana, or Oklahoma. This is a one-time extension provided by the IRS in response to the 2021 winter storms. Taxpayers in other areas have until May 17, 2021, to file their individual federal 2020 tax returns.
The IRS began accepting 2020 tax returns on Friday, February 12, 2021, and the sooner you file, the sooner you'll know your refund or tax bill.
Consider how filing your taxes early can help protect you and your wallet.
Top Reasons to Prepare Your Taxes ASAP
- Get your refund sooner
- Outsmart identity thieves
- Have more time to pay your tax bill
- Adjust withholding for the next tax year
- Avoid last-minute tax stress
Reduce the Chances of Tax-Related Identity Theft
Identity thieves use stolen Social Security numbers (SSNs) to file fraudulent tax returns and get refunds from the government. For example, just over one month into the 2019 tax season, the IRS had identified more than 3,529 returns claiming $15.7 million in fraudulent refunds.
Those are just the returns the agency caught. Unfortunately, it paid out some of the refunds among those that were flagged for fraud. The IRS prevented about 77.2% of fraudulent refunds from being issued.
Tax season can be a gold mine for identity thieves, and this problem can get pretty personal, too. These identity thieves use the same taxpayer identification numbers and Social Security numbers that people plan to use to file their own legitimate tax returns.
When someone uses your Social Security number to fraudulently claim a refund, the IRS computer system will reject your tax return when you attempt to file it electronically. This is because it flags your Social Security number as a duplicate if someone else has already filed a return using it.
This will slow down the process of filing your taxes, whether you're getting a refund or not.
You'll have to file your taxes the old-fashioned way, using paper forms and mailing them to the IRS. This will likely take you a lot longer if you're accustomed to filing your taxes electronically.
You must attach IRS Form 14039, the Identity Theft Affidavit, to that paper return.
Beyond the inconvenience the paperwork poses, there's the matter of your tax refund. It will take longer to receive if you're expecting one.
It takes the IRS about 120 to 180 days from the time the agency receives the tax return to the date the identity theft victim receives their refund.
Tax-related identity theft can happen to you directly when your SSN has been compromised, but it can also affect you if someone fraudulently claims one of your dependents or steals the SSN of a deceased family member.
Filing your tax return as soon as you can doesn't guarantee that you'll beat an identity thief to the punch, but it certainly improves your chances of avoiding fraud issues.
Get Your Refund Sooner
There's a simple reason to get on top of things early in the year if you're expecting a refund: The sooner the IRS has your tax return, the sooner it can issue that refund.
The IRS issues about 90% of refunds within 21 days of processing the returns. You can check the progress of your refund through the IRS website.
Give Yourself Time to Scrape Together What You Owe
You might want to know how much you'll owe as soon as possible, if you must send the IRS money this year.
Ideally, your tax bill won't come as a surprise, but you won't have a lot of time to arrange your payment if it does, and you wait until the filing deadline.
You must send your tax payment to the IRS by your filing deadline. Any balance you owe after the applicable tax deadline will accrue interest and fees.
Failure-to-pay penalties start at 0.25% and go up to 25%, depending on how delinquent you are and whether you’re enrolled in a repayment plan. You'll also face failure-to-file penalties if you don’t file your return by the deadline or extension deadline.
You can use a credit card to make your tax payment, but that transaction is also subject to processing fees of up to 1.99%—not to mention the interest your credit card might charge if you don’t pay your balance by the due date. The average credit card interest rate was 20.28% as of January 2021.
You can apply for an extension to file your tax return, but it only applies to filing. It doesn't give you more time to make a payment.
Start preparing your taxes as soon as you receive all your forms, to determine what you might owe. This might give you a couple of months to figure out where you're going to get that money. Here are a few options for payment:
- Divide the amount you owe by the number of weeks remaining until the tax filing deadline. Set aside that amount each week, so you'll have enough cash on Tax Day.
- Set aside as much as you can in the short term, and cover the rest with savings if you can't afford the first strategy.
- Consider applying for a payment plan with the IRS if you don't have enough in your savings account to pay your taxes, or if you'd have to dip into your emergency fund to do so.
See Whether You Need to Adjust Withholding
You'll know how much of a refund to expect, or the amount you owe the IRS, after you prepare your tax return. Adjusting your withholding accordingly for the current year can help you avoid a shock in 2022.
Use a 2021 withholding worksheet to determine how much you should set aside from each paycheck, and update your W-4 accordingly. Ask your company's human resources or payroll department for help if you're not sure how to do this.
It makes a lot of sense to get your tax preparation out of the way early in the year, but don't overlook the emotional toll of putting off filing your taxes. Wrapping them up well in advance of the due date means that you won't have to deal with the last-minute stress of tax season.