Tax season has just begun but the April 15th filing deadline will be here before you know it. The IRS is set to begin processing returns beginning January 31st so now’s the time to start getting your paperwork together. If you normally wait until the last minute to file, you could be creating some extra hassle and headaches for yourself. Getting your return in early has some definite financial advantages.
If you’re expecting a fat refund check, filing your taxes early is a no-brainer. The sooner you get your hands on the cash the sooner you can use it to pay down liability, fatten up your retirement account or fund those home improvement projects you’ve been putting off.
The IRS estimates that filing your return in early could shave as much as ten days off your wait time if you’re expecting a refund. If you put it off until the end of tax season, you’re much more likely to see your refund delayed as the IRS tries to process a mountain of returns.
The other upside of filing early is that you can get your refund deposited directly into an IRA or health savings account and have it count towards your annual contribution limit. You could also use the money to purchase Series I savings bonds. These types of bonds are a good way to save for higher education expenses since the interest you earn is tax-free.
Over the last few years, identity thieves have branched out their criminal activities to include tax refund fraud. The IRS has recently begun stepping up its efforts to detect and prosecute identity theft but millions of Americans may still fall victim each year.
Filing your return early can potentially cut down on the risk of your personal information being compromised. You’re essentially shrinking the window of time available for identity thieves to file a fraudulent return in name.
If your kids are heading off to college in the fall, getting your taxes done early can be a big help if they’re planning to apply for financial aid. The FAFSA uses your tax information to determine whether your student is eligible for aid and how much they qualify for. Waiting until April to send in your return could mean a smaller aid package or a longer wait time for the money to be disbursed.
Procrastinating won’t do you any favors when it comes to your taxes, especially if you find yourself in a rush to get them done at the last minute.. If you’re in a hurry, you may find yourself overlooking a key piece of information or making mathematical errors. When the IRS processes your return, the system will pick up on the error and you could end up getting a notice that you owe more taxes than you thought.
Starting on your return sooner rather than later gives you time to go back and review it to make sure all your information is correct. Even something as simple as a decimal point in the wrong place could end up costing you big so it’s worth it to give yourself some extra time.
If you think you’ll owe the IRS money this year it’s better to face the music now rather than later. The longer you wait to crunch the numbers, the less time you have to figure out a strategy for dealing with the taxes owed.
Requesting an extension gives you more time to file but it doesn’t give you more time to pay. You’ll also get hit with a hefty failure-to-file penalty if you don’t get your paperwork on time. This is in addition to the failure-to-pay penalty you’ll have to cough up if you owe Uncle Sam.
If you know you won’t be able to pay your tax bill in full, you should still go ahead and file as soon as you can. Pay as much as possible when you file and aim to get the rest in before the filing deadline. You’ll have to pay interest and penalties on whatever’s left over after April 15th but you won’t get hit with the failure-to-file penalty. Being proactive early on can minimize the amount you end up having to fork over.
If you’re dreading tax time waiting until the last minute to file will only prolong your pain. The early bird gets the worm and when it comes to your taxes, the early filer may reap the biggest rewards.
This post was published on January 17, 2014