Every April, many taxpayers wait until the last minute to file their federal income tax returns. Despite this tendency, there are many reasons to file your taxes early. If you will receive a refund, you may want to submit your return as quickly as possible. Additionally, there are benefits to filing early for those taxpayers who have a balance due.
Faster Tax Refunds
One of the most common reasons to file taxes early is to receive a faster tax refund. Filing your return electronically with direct deposit into your bank account is the fastest way to get your refund. It can take up to several weeks longer for paper returns, so it is always better to e-file a return if you want to receive your refund quickly.
Extra Time to Pay Taxes You Owe
If you owe a balance due to the IRS, you may still have a good reason to file your tax return as soon as you can. If you submit your return in the middle of January, you do not have to pay taxes you owe until the filing deadline in mid-April. Preparing your Form 1040 early will give you time to arrange your payment. This extra time is particularly helpful to taxpayers who need to find out exactly how much they will owe the IRS.
Obtaining Financial Information
If you are expecting a big life change such as purchasing a house or returning to college, preparing your tax return early can help you obtain essential information. College students use the information from Form 1040 to apply for financial aid, while prospective homebuyers often have to show their completed tax return as proof of their household income. Getting your tax return done early—whether you owe money or expect a refund—gives you a head start on the paperwork you will need for these processes.
Avoiding a Tax Extension
Filing your tax return early may help eliminate the need to file an extension. Extensions of time are often required as a result of disorganization more than financial need. Some people who wait until the last minute to file their returns simply need time to look for additional deductions or gather receipts. Push the process too close to the filing deadline, and you increase the likelihood that you will need the help of a tax professional to help you sort your finances and complete your return. Even worse, if you file an extension but don't pay what you owe if you have a balance due, the IRS will charge you interest and penalties on the outstanding tax debt until it is paid in full. Preparing your tax return early in the year helps you avoid this situation.
Preventing Tax Return Identity Theft
Once a criminal gets access to your Social Security number, he or she has everything necessary to file a tax return in your name. The purpose of a fraudulent tax return is, obviously, not to pay your back taxes, but to pocket your tax refund. This scam occurs early in the tax season, well before most taxpayers file. Take every possible precaution to keep your SSN secret, and if possible, file your taxes early.
Will you be filing your taxes early this year? Drop us a line in the comments section below and tell us why!
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business. The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. VyStar Credit Union disclaims any liability for decisions you make based on the information provided.