Should You Delay Filing Your 2023 Tax Return?

This is a guest post from my friend and very smart tax professional Jerry Zeigler of JZ Financial Management. I’ve made a few edits to make it clearer to my murky brain. 95% of these words are his. And all the brains are his.

It’s early February. Many taxpayers are eager to file their federal income tax return in anticipation of a tax refund. But pending tax legislation in Congress means that it might make sense to wait to delay filing your 2023 tax return.

What? Why?

There’s a bill in Congress that might change your 2023 tax calculations. This bill, the Tax Relief for American Families and Workers Act of 2024, contains two main provisions that could impact many taxpayers. So many folks are wondering: Should I wait to file until this bill passes? Or doesn’t pass?

Not surprisingly the answer to this question is the go to tax and personal finance answer: it depends.

There are a bunch of smart people who monitor these things who really think that some version of this bill will pass. Personally, I have no idea. You can track the status of this legislation here. It includes a bunch of stuff, but there are two areas of retroactive changes (impacting 2023 tax returns -the ones we are filing or are about to file now!) that are most likely to impact military taxpayers and taxpayers generally.

Child Tax Credit

The first impacts the child tax credit. The retroactive portion of this change, as currently written, impacts a segment of child tax credit recipients who wouldn’t normally max out the refundable portion of their child tax credit. This may include some military families.

Under this new legislation, the calculation is altered. This will result in some recipients of the refundable portion of the child tax credit (or additional child tax credit) to receive a bigger refund. Typically this would be taxpayers with lower taxable income.

It is important to note that this may not be the final version, so there could be additional retroactive changes that impact more taxpayers who receive child tax credit. Or, maybe it won’t get passed at all.

Business or Rental Property Activity

For business activity or rental activity there is also an important proposed retroactive change that impacts SOME business owners and rental property owners. This proposed change impacts what is commonly called bonus depreciation.

The law currently sets 2023 bonus depreciation at 80%. This proposed change moves bonus depreciation back up to 100%. Obviously this is only helpful if bonus depreciation is being done, but it can result in significant tax savings.

Should You Delay Filing 2023 Tax Returns?

So should you wait to file your tax returns? I think you already know the answer is “it depends”, but here is what you should consider.

1. The IRS doesn’t usually do widespread retroactive automatic changes on taxpayers’ tax returns. It did happen a few times in the past. You may remember it happening during the COVID-19 pandemic. However, I would not count on that in my planning.
2. If you really don’t need to file quickly or get a refund quickly, then consider delaying the filing of your return until we see how this plays out. I would delay filing if I had child tax credit at all on my tax return.
3. If you really need to file your tax return or get a refund, then file the tax return like you normally do. Still keep an eye out to see if the retroactive changes are passed into law AND see number 4 below.
4. If the act is passed into law after you file your tax return, give the IRS time to provide guidance. The IRS might make changes automatically for you. In case they don’t, you do need to be prepared to file a correction by either filing a superseded tax return or an amendment. Most likely tax professionals and tax software will charge you money to make these changes and to file. If the IRS indicates they will make the changes automatically DO NOT file a superseded return or amendment.

In my experience it is usually a safe bet that either Congress won’t do anything or they’ll manage to screw things up. But when it comes to potential retroactive tax law changes it can pay to be a little proactive and to patiently wait a little bit to see what Congress actually does. Or doesn’t.

Thank you Jerry for sharing your wisdom with us! You can check out Jerry’s other smart blog posts at his website, JZ Financial Management.