Most of us fall into two camps when it comes to filing our taxes: those who are super organized and file their tax return as soon as possible, and those who barely manage to scrape their paperwork together by April 15th.
Then again, not everyone who waits for the deadline is disorganized. Some people wait until the last minute because some companies tend to make mistakes and send in corrected forms late in the tax season. Which camp do you fall into? What are the advantages of either tendency (or strategy)?
I’d like to propose that there are more advantages to filing early (yes, even if you owe the IRS money) than filing at the last minute. Here they are:
#1: If you’re due a refund, you’ll get it sooner.
This is one of the greatest perks. Why let the government borrow your money for a few more months when you could be using it to pay off debt, make investments, fund your IRA, or reach one of your short-term savings goals? Better yet, consider adjusting your exemptions this year so you have more of that money to use all year long (think compound interest).
The rate of return for early filers is also faster since the IRS isn’t as busy. This year, the IRS expects to make direct deposit refunds within 21 days, but if you wait until later in the season, you could also wait several more weeks for your refund.
#2: You’ll have more time to arrange payment before the deadline if you owe taxes.
There’s still an advantage to filing early if you expect to owe taxes. If you file in January, you’ll have until the deadline to pay in full. This allows you to plan for the expense over a few months so it doesn’t hurt your budget (or your credit card bill) as badly.
#3: If you’re purchasing a house or filing a FAFSA, you’ll need your tax information as soon as possible.
Lenders request at least a few years of your tax returns as proof of income and ability to repay a mortgage. Getting your taxes done early will get you ahead in the pre-approval and purchasing process. And, although you can use the previous year’s tax information to file the FAFSA, doing this year’s taxes before you file will save the hassle of updating the form online later on.
#4: You might not need an extension (or a tax professional’s help).
Tackle them sooner if your taxes are a headache. You’ll catch mistakes and missing paperwork early enough to buy some time without having to file for an extension. The biggest risk with an extension is that you owe taxes in full on April 15, before you even know exactly how much you owe. If you can’t pay, the IRS can charge penalties and interest until you do.
Waiting until the last minute can also mean you’ll need the help of a CPA, which will cost even more.
#5: You’ll beat the tax identity thieves.
Don’t underestimate the sneakiness of people who don’t want to pay their back taxes. Waiting until the last minute to file also gives tax return identity thieves more time to steal your information and claim your refund. Although the IRS has safeguards against this kind of identity theft, it still happens – especially early in the season. The earlier you file, the more you can rest easy knowing you’re the first (and last) person to file with your identity. Of course, it’s always a good idea to protect your Social Security number and opt for direct deposit versus refund checks too.
I try to file my taxes as early as possible every year. How about you?