The same question comes up every year at this time… “Should I file my taxes early?”
The IRS started accepting and processing federal tax returns, for tax year 2013, on January 31st. Like most things, there are pros and cons. Let’s take a look at some good and bad things when it comes to filing your taxes early.
Here are a few things to consider about filing early:
- You know for sure that you are getting a refund. Especially if you do not itemize and are able to file an “EZ” form. There’s no sense in waiting… get the money owed to you as soon as possible.
- If you owe money. It’s my opinion that if you owe Uncle Sam money, pay it early and get it out of the way. People on the other side of this issue want to hold on to their money as long as possible. I understand that if you have your money in some type of instrument that earns interest, you can accrue the most you can before paying. But let’s face it, that is usually not the case. At least prepare your taxes early and if you owe, this will give you time to gather the dough. Just pay what you owe and get on with the New Year… you might consider changing your withholding so you don’t owe next year.
“…early tax filers tend to receive a larger refund.”
- Beat the rush. Filing your taxes early, whether you are getting money back or not, will put you in the minority. Most people wait until the last minute to file their taxes and the IRS gets overloaded. File early when the load is lighter… if you are getting money back, filing early could mean you get you refund check that much earlier!
- Mistakes. Filing early gives you time to correct any mistakes that might have been made on your tax return. This is especially true with preparing your taxes early. You will have the time to correct any mistakes and avoid the hassle of a fine or penalty for filing past the deadline.
- Getting a head of your finances. Another advantage to filing early, especially if your are receiving a refund, is that if you have loans or outstanding debt, and you know that you will be receiving a refund, you can pay off your outstanding debt earlier… or at least pay it down.
- Never be late. This should go without saying but it’s worth mentioning. If you file early, you don’t have to worry about missing the deadline!
According to a Rasmussen survey conducted in 2012, 30 percent of all people who file a tax return file it before February 28th. Here’s a quick breakdown of that 30 percent:
- Employed Full Time – 68%
- Female – 55%
- Own a Home – 53%
- Married – 45%
- Make Under $25k – 24%
- Age 25-35 – 23%
The report goes on to say that early tax filers tend to receive a larger refund.
Okay, we looked at some of the reason for preparing and filing your taxes early, not let’s take a look at some reasons why you might put off filing your taxes.
- IRS changing policies. When you file your taxes you use the policies that are in effect at the time of filing. However, the IRS can often announce last minute changes and introduce new forms for the new tax year. If you have already filed your return, you would have to contact the IRS and cancel your return or at the very least file an amended return. This doesn’t happen very often fortunately, but some people would rather just wait until the last minute, dealing with the rush, in order to avoid this problem.
- Lack of information. You might not have a choice and have to file later in the tax season due to a lack of information. It’s possible that your employer missed the deadline of getting you your W-2 by January 31st. Or, you have a brokerage account and you had stock sales in that year.
- Your IRA. By filing late, you have more time to fund your IRA. Traditional IRAs have deductibility limits, when you make contributions to your Traditional IRA, you are eligible to claim a tax deduction for the contribution as long you and/or your spouse are actively participating. By waiting to file, you will have more time to come up with money to contribute to your IRA… be sure to check with your tax/investment advisor for more details relating to your specific situation.
- Forms not available. Just like last minute rule changes, there might be a new form that is required for you to file, that you just can’t get soon enough to file early.
Many people use their taxes as an interest free savings account. By having more taxes taken out of their paycheck than needed to meet their tax obligation, many are assured a tax refund. This refund is used by a lot of people to pay bills or take that vacation they have been looking forward to all year.
No matter if you file early or wait until the last minute, remember that in order to avoid fees or penalties, you must file your tax return no later than midnight on April 15th.