Most taxpayers realize that the sooner they file their tax return, the quicker they will receive a refund. Beyond that simple common sense truth, however, there are a number of compelling reasons to file your tax return as early as possible. And, as someone who has often historically waited until the last few weeks before the tax deadline to file my return, I wanted to share the reasons why I’m now a “file early” convert.
Let’s start with some logistics. Employers are required to send out income related tax forms (e.g. W2, 1099-MISC, 1099-NEC, 1099-K, etc.) by January 31st each year. Financial institutions are required to send income forms (e.g. 1099-INT, 1099-DIV) by January 31st as well. And investment brokers are required to send consolidated 1099 forms by February 15th (though I have often received mine by the end of January). So, by late January/early February, most of us will have what we need to file our taxes.
Why wait to file your return? The only reason that I can think of is because you are waiting for a late or corrected form and you don’t want to bother with amending a tax return with the IRS. Note that you don’t have to pay taxes owed at the moment you file – you can wait until the tax deadline if you’d like. With that in mind, let’s jump into all of the reasons why it’s is beneficial to file your taxes as soon as possible.
If you Owe, Filing Early Gives you Time to Gather Funds to Make your Tax Payment
Owing the IRS money isn’t bad (if you can avoid penalties). Owing really just means that you have avoided giving the federal government an interest-free loan. But, sometimes you may owe a lot of money and that can be stressful if you haven’t planned for it. Even if you have requested a tax extension, your annual tax payments are still due by the April tax deadline.
If you do owe, the sooner you file, the sooner you will know how much the bill is going to be, and the more time you have to make accommodations to pay it. This could require selling off assets and waiting for the payment to be deposited into your bank account. It could also even require you to put in more working hours and receiving payment for your work.
You’ll Get Refunds More Quickly
In most cases, the IRS processes refunds much faster for early filers – sometimes within just a few weeks. And, if you file electronically and opt for direct deposit, the turnaround time can be even shorter. As returns pile up throughout the tax season, the IRS typically slows down the processing of those returns. And, this year, the IRS has even less resources, as mass layoffs just hit the department.
Remember though – a refund just means that you overpaid your taxes and the government held your income, interest-free. Look into updating your withholding amount so that you don’t overpay in future years. The average tax refund is over $3,000 – that’s a lot of money that could be put to use throughout the year.
You’ll be Able to Use your Refund to your Benefit Sooner
The sooner you file your return, the sooner you can use any refund you may be owed. And, of course, you will do so to your own financial benefit (versus buying stupid crap – something I refer to as “Tax Refund Windfall Syndrome“). For example, you could use your refund to:
Accruing a few extra months of interest or capital gains, or paying off debt more quickly results in more money for you.
The Best Deals & Discounts on Tax Prep are at the Start of the Tax Season
As someone who has been sharing tax prep software discounts with readers for many years now, I can attest that many of the best tax prep programs provide the best promos and discounts at the beginning of the tax season (e.g. “early bird” discounts).
There are a few reasons for this:
- Discounts are a way to lure in switchers to their products – and if a taxpayer has already filed, they can’t switch, so it’s best to acquire customers ASAP before another tax prep provider does.
- Tax prep providers want to spread out their customer service load over ~3.5 months instead of a few weeks.
- It allows the providers who offer tax pro filing assistance to serve more customers, resulting in more revenue for the company.
- Marketing/advertising budgets for promotions can be depleted by the end of tax season.
So, file early if you want the cheapest e-file possible.
Filing Early Helps Protect you Against Tax Identity Theft
Tax identity theft is a multi-billion dollar crime industry. Criminals can file fraudulent tax returns using someone else’s personal identity to claim a refund (before the real taxpayer does). By filing early, you reduce the risk of this happening to you. The sooner the IRS has your tax information on file, the less opportunity thieves have to take advantage of your details.
Filing early acts as an added layer of protection, ensuring that your tax return is the one processed by the IRS, and no one else can falsely claim a refund in your name.
While you’re at it, I’d also recommend doing the following to protect your tax identity:
If you Need Tax Pro Help, you Can Avoid the Rush
I’ve been in a few tax filing situations where I was going back-and-forth with a tax pro into the month of April, trying to finalize my return, and having to anxiously await their response for 4 or 5 days. Not fun.
Because Americans love to procrastinate, the last month of tax season is by default the busiest time of year for accountants and tax pros, and successfully getting and keeping their attention is a challenge. If you need a tax pro, filing early is going to result in more availability, focus, attention, and punctuality from them.
Tax Filing Cramming is Stressful
Last-minute filing to beat the tax filing deadline causes unnecessary stress. If you wait until the final days to file your taxes, you’re also likely to rush through the process, which increases the risk of making errors and getting penalized or shortchanging yourself. Even small mistakes can lead to audits, delays, or penalties. By filing early, you give yourself ample time to review your tax return, gather necessary documents, and ensure that everything in your return is accurate.
Tick tock.
