Each year we hear media ads encouraging us to “file early”. Much of this hype relates to one large tax preparation service or another vying for your attention. They are primarily trying to get you to act “now” while their name is front of mind. Although we can procrastinate our annual filing to April 15th, there are actually valid reasons that it may be wise to file your Individual Income Tax Return as early as possible.
Identity Theft Issues
Despite precautions to prevent it, identity theft has reached epidemic levels. If a fraudulent tax return is filed on your social security number or that of one of your dependents, your account with the IRS and corresponding State Agency could become locked. The processing of your valid tax return could find its way into the IRS fraud division office. This means additional processing time and actions on your part. More importantly, it could mean a delay of more than 6 months before you will receive any refund that is due to you. The IRS is actually urging taxpayers to file early to help avoid this situation.
Peace of Mind
Legal matters and looming debts can create stress. That is one thing we do not need more of in our life. The tedious and burdensome process of gathering annual tax documents and having a tax return completed, not to mention the unknown of possibly “owing” added income taxes, creates overwhelming stress for many taxpayers. The good news is that after completing your tax returns and knowing the outcome, most people feel a great deal of relief and peace of mind. It can almost feel rewarding. Instead of letting this chore cause you stress for 3½ months, you can shorten its grip by filing early.
If you will benefit from a tax refund this year, you cannot begin to enjoy it or put it to use until you receive it. This fits the phrase “the sooner the better”. The sooner you file, the sooner you can buy something special, pay off a debt or even take a vacation. Maybe you will simply save and invest the funds. You cannot begin to see growth in an investment until you can make that investment. Additionally, filing early, before the heavy workload hits the IRS, can provide you with a faster refund. Don’t forget to use direct deposit to speed your refund even more.
Knowledge of Amount Owed
This may fall under the above topic of peace of mind. But we are approaching this from a different angle. Even when you file early, you have until April 15th to pay any remaining income tax due to the IRS or your State Agency. The earlier you file, the earlier you know how much you owe. The more time between knowing and needing to pay, the more time you have to make appropriate payment arrangements with the least possible disruption to your normal daily financial life.
Actions for next year
With last year behind us, the time for “tax planning” for last year is past. There is little that can be done now to change the outcome of last year’s income tax return that is coming due this April. But, the results of that income tax return can provide you with valuable insight for the current year. This will allow you to act now to change payroll withholdings, make estimated tax payments or make various business or spending decisions to affect your income tax liability for this year.
When it is time to file your income tax returns, as well as planning for next year’s tax returns, you may find it helpful to engage the assistance of a CPA or other professional trained income tax advisor. Tax laws are complicated and ever changing. Having a professional on your side is just one more way to achieve peace of mind when it comes to your individual income tax returns.