Hey everyone, tax season is right around the corner. Why not get that stress out of the way early? While this article is for readers in the US, the principles still apply for us up in Canada!
5 Reasons to File Your Taxes Early
If you like to file your taxes early and then chuckle at all the procrastinators who wait until April 15 nears, your day of reckoning is getting close. The earliest day the IRS will begin processing 2013 individual tax returns is Jan. 31, 2014, a date slightly later than usual due to the government shutdown last fall.
What are the advantages of filing early? Here’s a list of good arguments from tax preparers.
Get your money now. This is the most obvious reason a taxpayer might want to file as early as possible. But try not to fall into the trap of thinking you need the refund before the IRS can get it to you. Some tax preparation services offer refund anticipation loans, which have steep fees that eat into that refund.
You’ll also likely get your money in a shorter amount of time if you file earlier than the person who files a month or two after you, according to Elaine Phelan, a professor of accounting at Siena College in Loudonville, N.Y. Early filers may only have to wait for their refund for 21 days – the average time taxpayers have had to wait in recent years, and sometimes less, according to the Internal Revenue Service – whereas a later filer may have to wait longer, say, 31 days.
“If you work with a paid preparer, they are excited to jump into the new year and will enthusiastically get your taxes done quickly,” Phelan says. “If you are expecting refunds, the IRS processing centers are less busy and will process your claim faster, so you might even get that refund sooner.”
And, of course, if you file electronically versus putting your form in a mailbox, you should get your money even faster.
It may help with financial aid. “Taxpayers with college-age children need to get their tax information early to get the maximum amount of financial aid,” says Lawrence Pon, a tax specialist who owns an accounting firm, Pon & Associates, in San Francisco. He says there is a direct link between the Free Application for Federal Student Aid form and the IRS, so your tax information is sent directly to the financial aid form without you having to provide it yourself.
It may help if you and your ex-spouse are feuding. Hopefully you don’t fall into this category, and it’s better for each party if you can keep the IRS out of your marital strife, but Pon says that “sometimes divorced people do not agree on who claims the children as a dependent, even though there may be a court order and an agreement. Whoever files first will claim the child, and the other ex-spouse may be out of luck.”
You’ll lessen your odds of becoming a victim of identity theft. “The sooner you file your return, the less opportunity someone else has to file a return in your name,” says Joe Reynolds, identity fraud product manager at Travelers, headquartered in New York.
He points out that some criminals have been known to break into a home or car, steal identification and then file taxes in that person’s name, scoring a refund that doesn’t belong to them. The odds are slim that that will happen to you, of course, but it is another reason to file earlier rather than later.
Reynolds also advises getting your refund via direct deposit “so criminals can’t have it redirected to their address or steal it from your mailbox.”
There’s more time to catch potential mistakes. If you wade into your taxes now and discover there’s paperwork you need that you don’t have, or it’s simply going to be a more complicated tax year than you anticipated, you may not end up filing early, but now you have more time to spend on your taxes.
Not that there aren’t smart reasons to file close to or on April 15, of course. If you owe the IRS money, there’s really no financial advantage for you to give it to them any earlier than April 15.
Still, by preparing your taxes early, you’ll know earlier how much you owe and will have more time to drum up the money to pay.
If you have a really complicated tax form – in which case you probably have a tax consultant or accountant advising you every step of the way – “many filing issues are resolved as the [tax] season goes on for the IRS,” says Tim Gagnon, an assistant academic specialist of accounting at the D’Amore-McKim School of Business at Northeastern University in Boston.
It’s possible that if you file too early, Gagnon says, you “may need to amend filing if the IRS changes forms, instructions or interpretations.”
Still, for most taxpayers who have refunds coming, filing early rather than later is the smarter decision. It is also psychologically better for many people, Pon says.
“Get the darn task out of the way” is the reason most of his clients opt for early filing, he says. He adds that it’s always “nice to get something checked off your to-do list early instead of letting it fester.”