Breaking down the benefits of filling your taxes earlier

CreditCards.com Industry Analyst Ted Rossman, joined Yahoo Finance Live to break down the benefits of filing your taxes earlier.

Video Transcript

- Tax man cometh is what's happening on April 15th. It's March 15th, beware the Ides of March, but you still got a month to file your taxes. Ted Rossman, CreditCards.com Industry Analyst, joins us right now.

And there was something very troubling over the weekend. The Treasury's actually holding up some of the IRS refunds because they're prioritizing the stimulus checks. So in the big picture, what's your message to people who have not yet filed?

TED ROSSMAN: I would say file as soon as possible, especially if you're owed a refund, so you get that money sooner. You also ward off identity theft by filing sooner, so that a bad guy can't steal your refund before you get it. I really think the big picture here is brightening considerably, because we have tax refunds coming, we have March stimulus, still got the January stimulus. You know, if you put all that together, this quarter, the typical family of four might take in an $11,000 windfall. That's a lot of money that's going to be circulating through the economy.

- Well, and Ted, how does that compare to prior years, what we typically see a family of four take in?

TED ROSSMAN: The tax refund itself is pretty similar. It's the stimulus that's really juicing it this year. And it's had a major effect on credit card debt. Total credit card debt is 12% lower now than it was a year ago, according to the Fed. That's really a massive move downward for something that usually just inches up, up, and up. So it really is beneficial for the household balance sheet. Delinquencies are down, as well.

It's really odd to say, and I don't mean to minimize those who've struggled during this pandemic, but actually a lot of people's finances have oddly improved because of stimulus, because they've been spending less. And now, hopefully soon with more vaccine availability, we can really see a sustained reopening.

- I'm going to go full geek here, Ted. I opened up the IRS filing season statistics for the week ending March 5th, the most recent of this year. 55,716,000 returns, which is actually down about 20% from 2020. Average refund at this point, $3,036, which is less than last year. Shouldn't the average, given what everyone's gone through last year, be a little bit higher this year?

TED ROSSMAN: You know, it's skewed a little bit because the tax season started a couple of weeks later this year. I would say that it's a very individual kind of thing. If you didn't get one or both of your 2020 stimulus payments, that's another reason to file ASAP, because you can claim that recovery rebate credit and get that money. That's really the only way to get it at this point.

The third, most recent stimulus, you can still sign up on the IRS website and get that direct deposited. Or maybe if you don't have a bank account you can give them a prepaid card information and try to get that sooner. But that's another little nuance this year, that if you're missing some of that stimulus money, claim it on your taxes.

- And Ted, going off that I guess, when we're talking about adjusting our tax strategy because of all these changes that we've all endured over the last 12 months, when is a good time to do that?

TED ROSSMAN: When we talk about the possible political changes, I would hesitate to make any tax strategy shifts based on what might happen in the future. But I think that, aside from politics, you know, this is always a good time of year to reassess your finances.

Your tax return is really kind of like a financial checkup of sorts, where you can reassess with HR how much you're getting withheld from each paycheck. You can revisit how much you're contributing to your retirement plan. It's actually not too late to take a 2020 IRA contribution and make that deductible. You have up until tax day, April 15th, to do that. So that's one thing you can actually still do to lower last year's tax liability.

I just think this is a good time to kind of reassess where you've been and where you're going. Because a lot's changed during this pandemic, but we hope much brighter days are ahead.

- There was a young kid on the avenue yesterday, as I was walking to the grocery store, handing out pamphlets and yelling, tax the rich, which is a movement here in New York City. Should people be worried that all of us could possibly be facing higher income taxes at the federal level if we're middle class, not necessarily, quote, "rich."

TED ROSSMAN: I think there's going to be a lot of wrangling in DC ahead before this becomes reality, but it does seem like the Biden administration has made some overtures towards raising the corporate tax rate and also taxes on the highest earners. So we're probably talking something like $400,000 of annual income or higher.

That could take a few different forms. Maybe it's an outright higher tax rate. Maybe it's a higher threshold for Social Security taxes. Maybe it's more taxes on capital gains. You know, there's a few different levers they can pull, but we'll see if any of this passes.

But if it does, I think it's going to hit the highest incomes much more than the middle class. The middle class could actually benefit. They already are, through an expanded child tax credit, and there may be other breaks ahead. Maybe anything from student loan forgiveness to maybe some breaks for retirement savings. I think they're going to really point any sort of increases on the wealthy and corporations.

- We need to get Kevin Brady in here, the Congressman who used to head Ways and Means Committee, because he promised us a simple postcard to do your taxes and that postcard never materialized.

Ted Rossman from Bankrate. Thank you so much for joining us.