7 Smart Reasons to Do Your Taxes Early, Plus One Reason to Wait
For most, tackling returns well ahead of time can reduce stress and speed up refunds, among other benefits.
While many say “Good things come to those who wait,” this quote surely wasn’t talking about tax preparation. You wouldn’t advise your students to procrastinate on writing a lengthy English paper or studying for midterms, would you? Instead, you likely encourage them to get started early. Likewise, waiting until the last minute to start your taxes can lead to less-than-optimal results.
This year, get a jump-start on filling out those forms—if not finishing and filing them outright.
Here are 7 reasons why it pays to start your taxes early.
1. You’ll reduce stress. Spring is a busy time for educators, so start document-gathering and form-filling now, a little bit at a time, instead of crunching it all into a last-minute, frantic rush job. You can get started, for example, by tallying up the deductible expenses you incurred during the school year, such as classroom supplies you paid out of your own pocket.
“We all know that life tends to throw curves,” says Eric Nichols, a certified financial planner and founder of Educated Wealth Strategies, a financial services firm created specifically for teachers and education professionals, “like when a last-minute staff meeting is called on the day you were planning to do taxes. By not procrastinating, you won’t need to worry about this because you’ll be finished, or close to finished. Besides, like many who don’t have personal finance backgrounds, educators perceive of taxes as something that ‘hangs over their heads.’ So just get it out of the way. You’ll feel better when you’re done.”
2. You’ll have more time to retrieve missing documents and information. Tax returns can get tricky. By putting them off, you’ll place yourself at greater risk of not having critical paperwork or required information in time. “Again, by giving yourself a head start, you avoid this scenario,” Nichols says.
3. You’ll get your money back sooner. “If the government owes you money,” says Ben Grosz, a tax attorney at Ivins, Phillips & Barker in Washington, “there’s no reason to let it stay there. The government doesn’t pay you interest on it, after all.”
4. You’ll have extra time to arrange payment if you owe money. Let’s face it: It helps to get the bad news sooner rather than later, especially if you don’t currently have the cash available to pay what’s due. Completing tax forms shortly after January 1 gives you more time to come up with ways to foot the bill. “You might need to shift some assets around,” Nichols says. “You may have to liquidate from an investment account, and that could take most of a week or longer. This could create problems if you wait until the last minute.”
Also, by doing taxes early, you afford yourself more time to assess exactly why you fell short on IRS payments. Armed with this information, you can make adjustments for the entire year ahead to correct the situation, like adjusting your withholdings. Another strategy: “You may consider starting or increasing your contributions to a 403(b) or 457(b) plan to reduce your taxable income for the following year,” Nichols says. In contrast, those who go right up to the April 15 deadline have lost three and a half months’ worth of time to “make things right” for next year.
5. Your tax preparer will have more time for you. If you use one, he or she will be more relaxed and attentive to your return. “The closer you get to April 15th, the busier tax preparers get,” Nichols says. “In fact, you may find it difficult to get an appointment outside of regular school hours if you wait until peak season.”
6. You can avoid tax-related identity theft. The IRS paid out $5.8 billion in fraudulent refunds to identity thieves during the filing season of 2013, the most recent year that such statistics have been reported. Just as your accountant gets busy in the weeks leading up to April 15, so do the crooks. To avoid getting your refund intercepted, it’s safer to file earlier. “Get your refund before a thief does,” Grosz says.
7. You may need your return to buy or refinance a home. Since the Great Recession of 2008, lenders are asking for an increasing amount of documentation in approving loans. If you’re looking to buy a house or refinance your current one, you should send the return as soon as you can to allow the paperwork to properly process. “It typically takes at least 6 to 8 weeks after filing before your return will show up on the official IRS transcripts,” says enrolled agent/tax practitioner Crystal Stranger, who is president of 1st Tax and the author of The Small Business Tax Guide. “This is often a requirement on the part of lenders to match the IRS information to the returns you provide. Thus, filing early can save a lot of headaches.”
… But here’s one reason why you might want to hold off:
You may not have all you need to file. If you run a side business or do contract work in the summer, for instance, it may be February or even later before you receive your 1099 or K-1 forms. “This isn’t an excuse to put off everything though,” Nichols says. “You can do all you have to do in advance, and then input information from these forms when they arrive. But you probably don’t want to file before they do, because it’s a pain to do an amended return – and it could lead to interest and penalties owed.”
TAX RESOURCES FOR EDUCATORS
Tips to get you through tax season:
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