6 Benefits To Filing Taxes Early for Retirees
Written by
Angela Mae
Edited by
Amen Oyiboke
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Filing taxes isn’t most people’s idea of fun, but it’s usually better to file early. After all, filing late can lead to some hefty penalties. The failure-to-file penalty is 5% of the taxes owed per month the payment is late (25% maximum). The failure-to-pay penalty is up to 25% of the unpaid taxes.
Even retirees should still file a tax return since many types of income are taxable at the federal — and in some cases — state level. And while it’s possible to request an extension, as the IRS predicts 19 million taxpayers will do this year, it’s generally best to get it out of the way.
If you need further convincing, here are the top benefits of filing taxes early as a retiree.
It’s a Safeguard Against Identity Theft and Fraud
Anyone can be the target of fraud or identity theft, with many bad actors specifically going after retirees. Unfortunately, this may become even more prevalent of an issue going forward due in no small part to the National Public Data breach that occurred in 2024.
“In the summer of 2024, the National Public Data (NPD) breach exposed 272 million taxpayer identification numbers (TINs) and 2.9 billion records, including Social Security numbers. It was one of the largest data breaches in history,” said Kevin Knull, CFP and president at TaxStatus.
“One of the most severe consequences of identity theft in the aftermath of the NPD breach is the increased probability of fraudulent tax returns,” Knull continued. “Criminals can use stolen TINs to file fake and fraudulent returns, often claiming large refunds long before the legitimate taxpayer files and is aware of an issue.”
Filing early can help protect you in the face of tax-related fraud and identity theft.
“With this level of threat, the earlier a legitimate return is filed, the less opportunity there is for criminals to submit a fraudulent one in its place,” said Knull. “It has never been more vital for taxpayers to file taxes as early as possible this year.”
It Avoids the Tax Rush
Waiting to file also means having to deal with plenty of people with the same idea. If you want to avoid the tax rush, and the headache that often entails, file early.
“One of the things I would say about filing taxes earlier is avoiding the madness of the tax rush,” said John Adams, CPA and fractional CFO expert at Bridgewater Tax and Financial Consulting. “It is easier for a paid preparer to focus on your taxes earlier in the tax season rather than the rush.”
It Gives You More Time
Simply put, filing early gives you more time to figure out what might be missing from your tax return.
“Filing early gives you more time to identify and collect any missing information needed to file your return,” said Mark Luscombe, principal analyst for Wolters Kluwer’s Tax and Accounting Division North America.
It also gives you the chance to figure out how you’re going to pay the taxes you owe, if any.
“Preparing your tax return early gives you more time to calculate the taxes that you owe and to make sure you have the funds available to pay any remaining tax due with the tax return,” said Luscombe.
Whether you’re living on a fixed income as a retiree, or you have a complicated portfolio, having more time is rarely a bad thing.
It Could Mean a Faster Refund
According to the IRS, the average refund amount is $3,138. But setting the amount itself aside, filing early could mean getting that refund sooner than expected. For retirees who rely on this refund as a part of their regular income, this can be huge.
“If you file your taxes earlier, you are likely to get your refund earlier,” said Jay Zigmont, PhD, CFP and founder of Childfree Wealth. “Refunds are generally processed in the order received. As we get closer to April 15th, there ends up being a backlog, and refund times tend to lengthen.”
It Helps With Required Minimum Distributions (RMDs)
Handling your financials in retirement can be complicated. Once you reach a certain age (typically 73 years old), you must also start taking the required minimum distributions from your accounts. Accounts subject to RMDs include traditional IRAs, SIMPLE IRAs, and SEP accounts.
“If you are in the first year of having to make a Required Minimum Distribution, [filing early] will give you more time to plan which accounts to take the money out of and when,” said Adams.
It Gets Them Out of the Way
When you retire, the last thing you need is more stress of hassle. Filing your taxes early gets them off your plate so you can focus on other things that matter to you.
“Many people, including myself, file their taxes early just to get them out of the way,” said Zigmont. “No one likes doing their taxes, so why wait and have to worry about it for a longer time?”
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