Should you file your taxes early? Well, first off, don’t panic about how the new tax law could affect you this tax filing season. The giant Tax Cuts and Jobs Act, passed late last year, doesn’t apply to your 2017 taxes in most cases.
The new law eliminates numerous tax breaks for 2018 and beyond, but you can still write off those deductions on your 2017 tax forms. (One major change from the new law that does affect 2017 returns: You can write off more in unreimbursed medical expenses than the prior law allowed.)
The best step you can take right now is to file your 2017 taxes as early as possible. Here’s why:
Protection From Identity Theft
In recent years, the IRS has recommended filing your taxes as early as possible so that if crooks get hold of your Social Security number, they won’t be able to use it to file a phony tax return and claim your refund—you’ll already have done that. That admonition still holds, though for slightly different reasons than in the past.
Identity theft on tax returns has dropped by about two-thirds since 2015, as state and federal tax authorities have added processes to improve security, the IRS says. “These protections are especially helpful if criminals only have names, addresses and Social Security numbers,” a recent IRS notice says.
“However,” the agency adds, “there are continuing concerns that cybercriminals will try to build on this basic information by trying to obtain more specific financial details from taxpayers and tax professionals to help them file fraudulent tax returns.”
What’s more, there’s no telling what cybercriminals might do with purloined information from massive data breaches last year, the IRS says.
Bottom line, as a security measure, it doesn’t hurt to file soon, says Cecilia Barreda, IRS spokeswoman. “We tell taxpayers to file as early as they can but not without the supporting forms they need to file an accurate return,” she adds.
Get Your Refund Sooner
About two-thirds of Americans can expect a federal tax refund this year. Last year the average tax refund was $2,895.
To get your money quickly, file your tax return electronically. The IRS says it processes most tax returns in less than 21 days and often can process electronically filed returns faster than that.
If you can’t wait that long, you can get an advance on your refund that might come a few days earlier. Several tax-preparation companies are offering them this year. These loans don’t charge interest or fees, but they’re not completely without strings.
For households claiming the Earned Income Tax Credit, a refund advance may be the best recourse for getting their money early; the IRS says EITC recipients should not expect their refunds until Feb. 27 at the earliest because their returns go through an extra fraud screening.
Fund an IRA With Your Refund
This is a neat, circular trick that early filers can do to both increase their refunds and fund their retirement. By noting your tax-deductible contribution to a traditional IRA on your 2017 return, you can reduce your tax liability, receive a bigger refund and use it to fund that IRA. Just be sure to contribute to your IRA before the April 17 deadline to have it count toward your 2017 taxes.
First, find out from your tax preparer or tax software how much of a tax-deductible contribution you can make to an individual retirement account.
You don’t actually have to shell out that money now. Rather, file a tax return early that reflects the contribution you expect to make. The IRA contribution limit is $5,500 for those younger than 50 and $6,500 for those older.
When you get your refund, make the contribution through an investment company. You have until this year’s April 17 tax deadline to do it.
You also can use your tax refund to fund your 2018 IRA, but it won’t count toward this year’s tax refund. There’s no hurry to fund your 2018 IRA, though; you have through the next tax season to make that contribution.
Buy Time to Research Payment Options
If you owe money to the IRS, it’s still a good idea to prepare and file your tax return early, though you don’t have to make the payment until the tax deadline.
Knowing the amount you owe before the deadline gives you more time to plan how you’ll pay. You can pay by credit card, but you’ll get hit with a service fee of as much as 1.99 percent of your tax liability. If you pay by debit card, you’ll owe a flat fee, which ranges from $2.58 to $3.95.
On the IRS website, you can find the agency’s list of accepted services that process tax payments by credit or debit card.
This article was originally featured in Consumer Reports Magazine in February of 2016. It has been updated since.
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