The IRS extended the filing deadline for 2020 taxes from April 15 to May 17, giving American taxpayers an extra month to prepare their returns.
For the procrastinators, this may be welcome news, but not everyone should take advantage of the extra time. In some cases, filing early is advantageous.
Read more: Tax Tips, Free Tools & How To’s
One factor to keep in mind is stimulus checks. The IRS uses the information it has on hand to determine your eligibility for a stimulus. If your income in 2020 was higher than in 2019, you might want to wait to file if the two numbers straddle the cutoffs for stimulus eligibility, which are $75,000 for single people and $150,000 for married couples.
“If 2020 is lower [than 2019] then you want to file as soon as possible,” says Mark Stafford, a certified public accountant in Maryland. “This really only matters for people whose income is near the threshold levels – so middle-income people. Very rich or lower income, it just does not matter.”
The same is true for child tax credit payments. A change in dependent status – like having a baby or having an adult child leave the nest – could affect how big a stimulus and child tax credit payment you would get, Gina DeRosa, a California CPA, told Yahoo Finance.
For people who aren’t sure, it’s important to compare both years to see what results better financially.
One of Stafford’s clients made quite a bit more in 2019, so he was scrambling on Thursday to get the return filed to make sure his client got a stimulus payment.
“The only way I can get [the IRS] to use 2020 is if I get it filed as soon as possible,” he said. The IRS hasn’t given a date when the precise cut-off is when it uses 2020 returns to determine eligibility versus 2019.
For people who received unemployment insurance, DeRosa pointed out, not filing too early can be better.
“It is advantageous to hold off on filing if there are legal issues pending that will affect your tax return,” DeRosa said. “We have been holding tax returns for all 2020 unemployment recipients because we knew retroactive relief was likely. Filing early would have caused some unemployment recipients to pay too much tax.”
That’s because the American Rescue Plan Act, which President Biden signed into law on March 11, waives federal taxes for the first $10,200 of unemployment benefits for adults who earned less than $150,000 in 2020.
Thanks to the stimulus payments and massive unemployment, this is a weird year. Besides the stimulus considerations, it usually doesn't matter much when you file your taxes, unless you want your refund ASAP.
“For those who are due refunds, it always makes more sense to file as early as possible, regardless of the due date,” said Barry Kleiman, a CPA at Untracht Early in New Jersey. “For those who owe, there is no reason to file early other than to ease the mad rush that their tax preparer may face in those last few days leading up to the deadline.”
[Read more: Jobless workers won't need to amend their taxes to get break on unemployment benefits]
If you owe Uncle Sam money, you could also file your taxes early but pay closer to the deadline, Kleiman added.
“Interest, and potential penalties, only start to run if you file or pay after the deadline,” he said.
The new May 17 deadline is not an extension, though you can still file for one. But as Rob Seltzer, a CPA in Los Angeles, told Yahoo Finance, “extensions are only for filing not for paying.”
For the accountants and tax preparers, this is obviously a stressful time, and for some the extra time might be helpful — but not necessarily.
“I feel that the extra four weeks is useless,” said Kleiman. “It is enough time to drag out the compression period but not enough time to smooth out the compression period.”
Furthermore, estimated taxes for people who need to pay them in Q1 as well as other filings for non-individual entities like trusts and corporations are still due on April 15, Kleiman said.
“It makes much more sense to extend all that is due on April 15, and even more so to make it June 15,” he said.
—
Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.
Why the world's biggest money manager is overweight stocks at an all-time high
The S&P 500 is currently mirroring 2009-2010 to a 'creepy' degree: veteran hedge funder
Charlie Munger on Robinhood and GameStop frenzy: 'It's a dirty way to make money'
'We should see the GME short squeeze continuing': S3 Partners
