Many taxpayers start thinking of their annual tax filing obligations around the new year. Traditionally, the deadline is mid-April, but reasons exist for considering submitting your tax returns earlier than necessary. However early filing might not be the appropriate option for everyone. With this article, you discover the pros and cons of submission before the deadline so that you understand whether this will be the strategy that you should take given your current circumstances.
Advantages of Early Tax Filing
1. Early Refunds
Among the major benefits of early tax filing is that it may earn you an earlier refund14. The tax authorities process returns in the order they are received, thus submitting your return early in the tax season can earn you a faster refund. This can be particularly helpful if you are relying on your refund to pay bills or make essential purchases.
2. More Time to Prepare for Tax Payments
If you think you will owe taxes, filing early allows you time to prepare financially. By considering different tax filing options, such as using online software or consulting a tax professional, you can ensure that your return is complete and accurate. You will also have a clearer idea of how much you owe, so you can budget for that amount by completing your return ahead of the deadline. Again, even if you file early, you still have until the official deadline to make your payment.
3. Less Stress and Greater Accuracy
The good news is that the more you file your taxes ahead of time, the less tension you’ll be under while doing so and the more time you will have to do things just right. That means more time to get all your information together, to double-check your math, and to consider each deduction you make. Reduced stress may also help avoid making mistakes that will attract unwanted audit attention.
4. Shield Against Identity Theft
Submitting your return early can help protect you against tax-related identity theft. Thieves sometimes file fraudulent returns using stolen personal information to claim refunds. By filing your legitimate return early, you reduce the window of opportunity for potential fraudsters.
5. Access to Tax Professionals
Tax preparers and accountants usually get very busy near the deadline of filing. You’re more likely to get appointments at convenient times as well as receive focused attention from these professionals by doing it early.
Possible Disadvantages of Early Filing
1. Lack of or Inadequate Information
One of the major drawbacks to filing too early is the possibility of submitting your return before you have all the information you need. Employers and financial institutions also have deadlines for sending tax documents, meaning that filing before receiving these could result in errors or the need for amendments.
2. Missing Out on Late-Breaking Tax Changes
Tax laws and regulations can change, sometimes even late in the tax season. By filing very early, you might miss out on potential deductions or credits that become available later.
3. Reduced Flexibility for Financial Planning
This would mean definitive decisions with regard to your tax situation by earlier parts of the year. That would restrain your strategic moves which, in turn, could impact your tax liability by making retirement contributions or charitable contributions.
Pre-Filing Planning
i. Obtain all of the necessary documents
Before filing early, ensure you have all tax documents, including your W-2 forms, 1099 forms, and all other relevant financial statements. Verify that you don’t miss something that would impact your return.
ii. Check Recent Life Changes
Consider any major life events of the last year that may change your tax situation, like marriage, divorce, or birth of a child, changing employment status. These factors can affect your filing status and potential deductions.
iii. Evaluate Your Financial Situation
Consult a tax professional if you have a complicated financial situation, such as owning a business or earning money from multiple sources. They can advise you on how best to optimize your deductions and credits.
iv. Keep On Top of Tax Law Changes
Keep updated with any new changes or updates in tax law that could impact your return. This will be an excellent basis to help you make a decision of filing early or waiting.
When You Should Not File Early
Although filing early comes with many advantages, there are moments when you should not. This is if:
- You’re expecting corrected tax forms or further financial information.
- When you have a complex tax situation that requires extensive preparation
- If you’re planning significant financial moves early in the year that could impact your taxes
- When you’re aware of pending tax legislation that might affect your return.
Conclusion
Filing early can have many benefits, such as getting refunds faster, reducing stress, and providing better protection against identity theft. However, it is important to weigh these advantages against the potential drawbacks, such as the risk of filing with incomplete information or missing out on late tax law changes.
Deciding whether to file early, therefore, should be based on your specific circumstances. You can file early if you have a simple tax situation and have all the documentation you need. However, if you are in a complex situation or expecting more information, it’s safer to take some more time to prepare your return.
The key will always be approached with some form of detailed consideration on the taxes one file irrespective of when chosen to file. Be it whether one files the taxes early in advance or much closer to the deadline.
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