The Best Time to File May Depend on Your Situation

As New Year's resolutions begin to fade, many Americans begin thinking about filing their taxes. While you should always try to file before the deadline passes (or request an extension) the best time to file may depend on your particular circumstances.

Filing As Soon As Possible

The following are some of the reasons why you may want to file as soon as you receive your end-of-year paperwork:

You're Likely to Get a Refund

If you think you'll get a refund and you have all your paperwork, there may be no better time to file. The Internal Revenue Service (IRS) typically begins accepting income tax returns in mid to late January.

Early filers should consider transmitting their tax electronically, using an online service like E-file.com. This ensures the fastest processing and often a quicker refund. Refunds for electronic returns are typically issued within 21 days, while processing paper returns can take anywhere from six to eight weeks. Taxpayers can cut the processing time even further by choosing direct deposit rather than a paper check. Refund status can be checked via the IRS website (more on this here).

You Have a Basic Return

Most basic tax returns can be filed using the new simplified 1040 Form. There is not as much involved with preparing this form when schedules are not included. Once you have received all your documentation and confirmed the information is accurate, then there may be little reason left to procrastinate. Your return should not change because you wait to file.

If you are receiving a refund, this will allow you to claim your refund sooner. If you do not expect a refund, you'll at least know how much tax you need to pay. Remember, filing your taxes early doesn't mean you need to pay your bill before the April deadline. It just provides you with a forewarning of your tax bill and may allow you to better budget for the payment. Even if you have the funds to pay the bill early, you may not want to pay before you have to. Allow it to earn interest, before it must be paid to the IRS. Even if is just a few extra dollars it's better in your pocket than not.

You Have Concerns About Identity Theft

Identity theft is a growing social problem that is impacting many aspects of our lives. This even includes filing your taxes. In the first 11 months of 2015, the IRS suspended processing or rejected approximately 4.8 million suspicious tax returns. Tax identity thieves attempt to gain information about their targets and file fraudulent tax returns in their names. If a taxpayer files their return early, they can help prevent a fraudulent return from being filed. Once a tax return is received, the IRS will automatically reject any subsequent return from being electronically transmitted.

No matter the reason, preparing your tax return early can feel like a weight has been lifted off your shoulders. If your situation permits, filing early may be your best option.

Waiting to File

There are a number of reasons you may want to wait to file your return, even if you have already received your paperwork. Here are a few of those reasons:

Yet to Receive Your Documents

One of the most common reasons for a taxpayer to postpone preparing their tax return is that they are missing some of their documentation or the documentation they received is not accurate. While most paperwork you receive will be accurate, sometimes employers, mortgagees, investment companies, and universities make mistakes when reporting your wages, mortgage interest, investment income, and tuition costs. If you receive new paperwork after you've already filed your tax return, you'll need to file an amendment. It is always better to wait until you have all of your paperwork and it appears correct before proceeding with you tax filing.

Complex Tax Returns

While people with simple tax returns may not benefit from time to consider their responses, Americans with more complex tax matters may. If this is the case it may be a good idea to start your tax filing early but spend additional time contemplating your responses and reviewing the return. Allotting time to think about your return can provide you with an opportunity to make any adjustments if needed. If you file early, then realize you've made a mistake, you'll need to file an amendment. This can require more time and, if you are expecting a refund, may prevent you from receiving it as quickly. Trying to prepare your return correctly the first time is the best approach.

Only as a Last Resort

In most years, April 15th is the deadline for filing your tax return. Filing on or before this date, will help you to avoid a late filing penalty amounting to 5 percent of your taxes due for every month or partial month your return is late. Occasionally there are obstacles which make it difficult to file your taxes by this date. The IRS understands this and can grant you an extension of time to file your return. However, extension requests need to be made on or before the April deadline.

Note that the extension only gives you more time to file your paperwork, not pay your taxes. When filing for an extension, you should try to include payment on the estimate of taxes due.

As you can see, the best time to file your taxes really depends on your personal circumstances. Consider your situation carefully to help find the best time for you to file.

Q&A: What are the penalties if I file my taxes late?

When you file your taxes late without filing for an extension, you begin accruing a failure-to-file penalty. This is actually higher than the failure-to-pay penalty and is charged every month. The best way to avoid these costly expenses is to file for an extension if you think you may miss the federal tax deadline. An extension can be requested through the IRS Form 4868. Extension requests are automatically accepted for most taxpayers.

The penalty for failing to file on time is equal to 5% of your unpaid tax amount each month the return is late, up to 25% of your tax obligation. The IRS doesn't prorate the monthly penalty, so you'll be charged for an entire month no matter when the return is received during the month.

If you're also late paying your tax bill, you'll start accruing a failure-to-pay penalty on top of the failure-to-file penalty. This is typically between 0.5% and 1% of your tax bill and is also charged monthly until you pay or work out a plan with the IRS. Even when filing for an extension, taxpayers should be prepared to pay any tax liability by the original deadline to avoid this fee.

Just how late your taxes are filed also impacts what you'll have to pay. If your tax return is more than 60 days late, your minimum penalty will be the lesser of $135 or 100% of your tax bill.