The Benefits of Filing Taxes Early
Americans, there is no getting around the need to file an annual tax return.
Fortunately, the IRS gives you plenty of time to organize your paperwork and submit your forms. The regular filing deadline is April 15, and those requesting an extension can take up to Oct. 15 to file their forms, although any taxes owed are still due in April.
Just because you can wait to file doesn’t mean you should, though.
“Filing a tax return early allows for less stress,” says Michael Lackwood, managing director of Spring Delta Asset Management, a wealth management firm in New York City.
It can also mean a more accurate return, more time to pay a tax bill and a reduced chance of being a victim of tax-related identity theft.
Benefits of Filing Taxes Early
There are several reasons to complete tax returns early rather than waiting until April:
- More accurate returns potentially resulting in larger refunds.
- Less competition for appointments with tax preparers.
- More time to plan for tax payments.
- Less chance of tax fraud.
“They say when people file early, they get a little larger refund,” says Julie Reyes, chief financial officer at retirement planning firm Reyes Financial Architecture in San Diego.
That may be because people who file near the tax deadline are often rushing to complete their paperwork and could miss valuable deductions or credits. Filing earlier also means receiving your refund earlier.
For those who owe money to the IRS, completing tax forms early provides time to plan for how to pay the bill. Even if a tax return is filed early, payment isn’t due until April 15.
The IRS notes the busiest part of the tax season is in April, which means appointments with tax professionals may be hard to come by during the final weeks before the tax filing deadline. Making an early appointment could mean you are able to meet at a convenient time, and your return won’t have to compete for your tax preparer’s attention.
However, one of the most important reasons to file early is to avoid being a victim of tax-related identity theft. Fraudsters use stolen Social Security numbers to create phony returns and file them early in the tax season. If they aren’t flagged for review by the IRS, the return is processed and a refund issued. Then, when the legitimate taxpayer tries to file his or her return, the system rejects it.
The result can be a protracted process in which an affidavit must be completed, supporting documentation provided and a paper return filed. The best way to avoid being a victim of tax identity theft is to file your return as soon as possible.
When Is the Earliest I Can File My Tax Return?
The IRS will begin accepting returns for the 2019 tax year on Jan. 27, 2020. However, not everyone will be able to file then.
Employers have until Jan. 31, 2020 to mail out W-2 forms, which record worker wages, tax withholding and other data that is crucial for tax filings. The same deadline applies for 1099 forms, which are sent to independent contractors or used for nonwage sources of income such as interest or disbursements from retirement accounts. Meanwhile, those who own pass-through entities such as a partnership or S-corporation may not get tax forms for their business income until March.
“If you have a more complex return, you have to wait for that paperwork,” Lackwood says.
Even those who do have all their paperwork before the end of January should be careful not to rush their return.
“You don’t want to be too hasty,” says Lance Christensen, partner with accounting firm Margolin, Winer & Evens LLP in Uniondale, New York. “You want to have time to get it done right.”
How to Avoid Tax Fraud
“Although the IRS has taken steps to curtail tax-related identity theft, fraud with tax returns has become rampant,” Reyes says.
It was the third-most-common type of identity theft reported to the Federal Trade Commission in 2018, although the number of complaints declined 38% from the year before.
Those who can’t file early may have other options to deter fraud. The IRS offers a transcript service that lets taxpayers review activity on their record. This method doesn’t prevent identity theft, but it helps taxpayers proactively address problems rather than finding out about fraud when filing their return.
Some taxpayers also have the option of using an identity protection PIN that offers another layer of security against fraud. In the past, the federal government only issued PINs to those who were victims of tax identity theft. However, residents of 19 states and the District of Columbia are now eligible for a PIN even if they aren’t identity theft victims. Be aware that once you request a PIN, you must use one to file every year.
For those who are eligible, a PIN can be a good way to deter fraudulent returns. For everyone else, filing as early as possible remains one of the best ways to avoid being a victim of tax identity theft.
Source: US News & World Report
