5 Tax Breaks Most Middle-Class Families Miss Because They File Too Fast
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
For many middle-class families, filing taxes early can feel like a financial win in and of itself. It can sometimes lead to a faster refund and one less task hanging over your head. But tax experts say speed often comes at a cost.
Each year, families leave money on the table by moving too quickly to file. Tax and financial experts explained the kinds of tax breaks middle-class families may be missing in their rush to get filed.
1. An Accurate Refund Due To an Incomplete Return
Filing early can create a false sense of completeness, according to Steve Min, chief credit officer of risk management at Credit One Bank. “The return isn’t complete yet when someone rushes to file,” he warned.
He pointed out that corrected forms 1099 from brokerages, K-1s and marketplace 1095-A forms often arrive in February or March. Additionally third-party 1099-K rules have been shifting, “so early numbers are frequently wrong,” he said.
Min added that rushing often leads filers to skip entire sections of tax software or they fail to update life events that will call up eligible benefits.
2. Key High-Value Tax Credits
When families file too quickly, several high-value credits are frequently overlooked, Min said, such as child and dependent care, the American opportunity and lifetime learning, the earned income tax and the saver’s credits.
Brian Zink, CEO and founder of No Upfront Tax Relief, said that a lot of people assume credits for children or for education apply automatically, and that is not the case. “If a person’s income limits, filing status or documentation are off, it can disqualify them from being eligible for those credits.”
According to CPA Steven J. Cashiola, even families who know about certain credits often underclaim them because they misunderstand what qualifies.
“The child and dependent care credit is not limited to traditional day care expenses. Many taxpayers overlook other qualifying costs such as before and after school programs and summer day camps.”
Education credits are another common miss in the rush to file.
3. Retirement Contributions and Credits
Several tax benefits remain available after the calendar year ends, but only if you wait to file. Cashiola warned that filing early can permanently close those doors. “Prior year IRA and HSA (health savings account) contributions can be made up to April 15 but not after the tax return is filed. Filing early eliminates the opportunity to make these investments that reduce taxes for the filing year.”
4. Side Income Deductions
Side income introduces additional complexity that fast filers often underestimate. Min noted that even a small amount of gig work can open the door to meaningful deductions.
“Starting a side gig opens up a qualified business income deduction (QBI) deductible expenses, and possibly Simplified Employee Pension Individual Retirement Account (SEP IRA) or solo 401(k) contributions that amplify savings.”
Cashiola added that investment losses are commonly overlooked. “Prior year losses can offset current year investment gains and reduce up to $3,000 of ordinary income,” he said. “Prior year carryforwards can be missed when changing tax preparers or tax software programs.”
5. Hidden Savings Due to Tax Software Features
While tax software simplifies taxes, autofill and carry-forward features can suppress eligible credits, Min said. “Auto import can carry forward last year’s dependents or marital status, default to the standard deduction without checking itemizable expenses, or skip interview paths for credits.”
Zink agreed, adding that “tax software only uses what people put into it, and it won’t take into account changes made from the prior year.”
Red Flags That Signal You Should Slow Down or Get Help
Certain situations should prompt extra caution, Min warned, such as missing or delayed forms. Not including even one expected W-2, 1099, 1095-A, K-1 or a known correction notice can be a red flag, he said.
How To File Accurately Without Giving Up Your Refund Timing
Getting your return accurate shouldn’t require long delays, just discipline. Min recommended a short checklist approach. “Wait until mid-February for stragglers and corrections, then reconcile W-2 and 1099 totals to what you import.”
Cashiola and Zink both emphasized that filing correctly matters more than filing fast. “The best way to make sure you are saving as much money as you can, while preventing future problems, is not worrying about filling your taxes early, but making sure they are done correctly,” Zink concluded.
More From GoBankingRates
