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For many middle-class families, filing taxes early can feel like a financial win in itself. This can sometimes lead to a faster refund and one less task hanging over your head. But tax experts say speed often comes at a cost.
Every year, families leave money on the table by moving too early to file. Tax and financial experts point out that the types of tax breaks that middle-class families may receive may be disappearing in the rush to file.
1.Exact refund due to incomplete returns
According to Steve Min, chief credit officer of Risk Management, filing early can create a false sense of completion. Credit One Bank. “The return is not yet complete when someone rushes to file,” he warned.
He said amended Forms 1099, 1095-A forms from brokerages, K-1s and marketplaces often arrive in February or March. Additionally, third-party 1099-K rules are changing, “so the initial numbers are often wrong,” he said.
Min said the rush often causes filers to skip entire sections of the tax software or they fail to update life events that would call up eligible benefits.
2. Major High-Value Tax Credit
When families file too early, many high-value credits are often overlooked, Min said, such as child and dependent care, American Opportunity and Lifelong Education, earned income tax and the Saver’s Credit.
Brian Zink, CEO and Founder no advance tax reliefThat said, many people believe that the credit for children or education automatically applies, and that’s not the case. “If a person’s income limit, filing status or documentation is off, it may disqualify them from being eligible for those credits.”
According to CPA Steven J. cashiolaEven families who know about certain credits often underclaim them because they misunderstand what qualifies.
“The child and dependent care credit is not limited to traditional day care expenses. Many taxpayers overlook other qualifying costs such as before and after school programs and summer day camps.”
Education credits are another common omission in the rush to file.
3. Retirement Contributions and Credits
Many tax benefits remain available after the calendar year ends, but only if you wait to file. Cashiola warned that filing early could leave those doors permanently closed. “Prior year IRA and HSA (health savings account) contributions can be made until April 15, but not after the tax return is filed. Filing early removes the opportunity to make these investments to reduce taxes for the filing year.”
4. Excess Income Deduction
The additional income introduces additional complexity that speedy filers often underestimate. Even small amounts of gig work can open the door to meaningful reductions, Min said.
“Starting a side gig opens up a qualified business income deduction (QBI) deductible expense, and possibly a Simplified Employee Pension Individual Retirement Account (SEP IRA) or Single 401(k) contribution that boosts savings.”
Cashiola said investment losses are usually ignored. “Last year’s losses could offset the current year’s investment gains and reduce normal income by as much as $3,000,” he said. “Changing tax preparers or tax software programs may result in the loss of the previous year’s carryforward.”
5. Hidden savings due to tax software features
While tax software simplifies taxes, autofill and carry-forward features can suppress eligible credits, Min said. “Auto imports can carry forward dependents or marital status from the previous year, default the standard deduction without checking itemized expenses, or skip the interview path for the credit.”
Zink agreed, saying that “the tax software only uses what people put into it, and it won’t take into account changes made in the past year.”
Red flags that indicate you should slow down or seek help
Min cautioned that extra precautions should be taken in certain situations, such as missing or delayed forms. Not including even a single required W-2, 1099, 1095-A, K-1 or known correction notice could be a red flag, he said.
How to File Your Refund Accurately Without Missing Time
Getting your returns accurate shouldn’t require much delay, just discipline. Min recommended a brief checklist approach. “Wait until mid-February for stragglers and corrections, then match the W-2 and 1099 totals with what you imported.”
Both Cashiola and Zink emphasized that filing correctly is more important than filing fast. Zink concludes, “The best way to make sure you’re saving as much money as possible while preventing future problems is not to worry about filing your taxes early, but rather making sure they are filed correctly.”