For many taxpayers, filing an income tax return means getting money back. So why delay? Sometimes for good reason, advisers say.
Last year, about seven out of 10 Massachusetts filers got refunds, averaging $2,372 from Uncle Sam and $480 from the state. For many people, that's a big reason to file their returns well ahead of the April 15 deadline. And yes, it's certainly true that the faster you get the return in, the faster you get your refund.
Still, being early isn't always wise.
"In the rush to quickly finish your return and get a refund, you may not leave enough time to make sure you take advantage of all the deductions and credits to which you are entitled," cautions CPA John Battaglia, of the national tax and advisory firm Deloitte Tax.
The Internal Revenue Service itself told some taxpayers to slow down after an emergency fix by Congress late in December curbed an unintended expansion of the federal alternative minimum tax - at least for 2007.
Because of the legislation, the IRS had to scramble to reprogram its computers to take account of the change when processing some returns. Some eager-to-file taxpayers, such as those claiming education or energy credits or a deduction for childcare on a 1040A return, were told they couldn't file until Feb. 11.
But even without the AMT snag, racing to file doesn't always pay off.
Stoughton tax preparer Leon Rudman, past president of the Massachusetts Society of Enrolled Agents, suggests: "After finishing a return, put it down and let it sit for a bit and then look it over again."
But a quick buck is hard to resist. "If they are getting a refund, people want to file early, if they owe tax, they want to file late," says CPA Andrew Schwartz of Woburn, who nevertheless recommends to "hold off unless you have a very basic return."
How long to wait can depend on a return's complexity and whether there's incomplete financial data. Some advisers say it's often appropriate to wait until early March or later. Beware, though: Delaying a federal return also generally means delaying a state return since data on the two are often linked.
Cover your bases
A good reason to not file in haste: making sure all your paperwork is in and all your bases are covered.
Investors often receive revised dividend and other income statements later in the season, which can require redoing a return filed early, says Battaglia. Participants in tax shelters may not even get the information they need until close to the April filing deadline or later, requiring a filing extension.
And waiting to file can allow time to gather receipts and other records, including missing W-2 and 1099 statements that show income reported to the IRS.
"Not receiving a 1099 or W-2 doesn't mean you aren't liable for tax on that income," cautions New York attorney Barbara Weltman, a contributing editor at the annual J. K. Lasser tax guide.
Another reason to wait: Widely used consumer and professional tax preparation software often has updates and revisions after its initial release - particularly this year - and waiting a bit to file allows time to get those fixes, Rudman says.
Addendums to early-printed consumer tax guides and belated clarifications and fixes by the IRS, posted online under "What's Hot" in the forms section at irs.gov, also argue against haste.
Unhurried sleuthing may also alert you to additional tax savings and give you things to ask about if you hire a preparer.
In a new break, for example, homeowners may be able to deduct mortgage insurance premiums on new or refinanced mortgages, though the deduction typically phases out between $100,000 and $109,000 of income.
Also new is an income exclusion for troubled homeowners. Taxable income may no longer result when part of a mortgage is forgiven during foreclosure or a modification of its terms.
What can you deduct?
Filing early can also give you more time to go through all your possible deductions.
The tough part in deducting uninsured medical payments is that only the overall portion exceeding 7.5 percent of your adjusted gross income is typically deductible. But spending time to pull together big-ticket items and other accumulated expenses may get some people over that percentage in some years.
Among deductible medical expenses: travel to get care, dental work, a weight loss program for obesity or other ailment diagnosed by a doctor, medically needed cosmetic surgery, laser eye correction, and required home improvements.
Additionally, the IRS recently clarified that annual checkups, pregnancy tests, and full-body scans are deductible even without an immediate medical need.
Don't give up the hunt if you don't itemize deductions on the 1040's schedule A and instead take the fixed standard deduction. Some deductions are allowed in addition to the standard amount.
For example, you can deduct up to $250 in out-of-pocket expenses by teachers for classroom items, interest on student loans, and job-related moving bills. And tax credits for college tuition, child care, buying a hybrid car, and other items also are allowed in addition to deductions.
While looking for deductions, don't forget about last year. Some taxpayers might benefit by reviewing their 2006 returns.
"Many people entitled to a one-time rebate last year of telephone excise tax failed to claim even the $30 to $60 that required no phone bills or other documentation," notes IRS spokeswoman Peggy Riley. They can file an amended 1040X return to claim the money, she says.
Simplify, simplify, simplify
Finally, do all you can to simplify your return and its trip through the filing process. That can save you time and irritation.
Don't over-complicate a return in the effort to trim tax.
If you report only wages and limited interest, have no dependents, and don't claim itemized deductions, you may be able to use the one-page federal 1040EZ. People with pension income and taxable Social Security benefits or who claim various popular tax breaks may have to step up only to the 1040A.
"There's no need to wade through the 1040, with entries and instructions that may have noting to do with you, unless your deductions or income require it," says Bob Scharin, a senior tax analyst at Thomson Tax & Accounting, a provider of tax information and software.
The full-bore 1040? Among the people stuck with it are those who itemize deductions, pay low capital gains tax on the sale of stock, or have taxable income of $100,000 or more.
Additionally, all forms move through the system more quickly when they are filed electronically through a preparer or by using tax software on a home computer or tax-preparation website - and that can speed up a refund.
Refunds on mailed federal returns can take four to six weeks, while those on electronically filed ones may take two to three weeks, says the IRS, with the best speed on refunds directly deposited to a bank account. Refunds on electronically filed Massachusetts state returns typically take only a few days, says Department of Revenue spokesman Bob Bliss.
