5 Reasons to File Your Taxes Early
Preparing your tax return ASAP can solve a lot of problems
You may have until April 15 to file your taxes, but processing your return as early as possible can save you from a slew of headaches. The IRS began accepting 2019 tax returns Monday, Jan. 27, 2020, and the sooner you file, the sooner you'll know your refund or tax bill.
If you're not convinced, consider how filing your taxes early can also help protect you and your wallet.
Top Reasons to Prepare Your Taxes ASAP
- Get your refund sooner
- Outsmart identity thieves
- Have more time to pay your tax bill
- Adjust withholding for the next tax year
- Avoid last-minute tax stress in April
Reduce the Chances of Tax-Related Identity Theft
Identity thieves use stolen Social Security numbers (SSN) to file fraudulent tax returns and get a refund from the government. For example, just over one month into the 2019 tax season, the IRS had identified more than 3,500 returns claiming $15.8 million in fraudulent refunds. Those are just the returns the agency caught, and, unfortunately, among those flagged for fraud, it paid out some of the refunds (the IRS prevented about 77% of fraudulent refunds from being issued).
In short, tax season can be a gold mine for identity thieves. And this problem can get pretty personal, too. These identity thieves use the same taxpayer identification numbers and Social Security numbers that people plan to use to file their tax returns.
Here's what happens when someone uses your Social Security number to fraudulently claim a refund: When you go to electronically file your tax return, the system may reject it because it flags your Social Security number as a duplicate. Whether you're getting a refund or not, this will slow down the process of filing your taxes.
For starters, you'll have to file your taxes the old fashioned way, using paper forms and mailing them to the IRS. If you're accustomed to filing your taxes electronically, this will likely take you a lot longer. With that paper return, you need to attach a Form 14039, also known as an Identity Theft Affidavit.
Beyond the inconvenience the paperwork poses, there's the matter of your tax refund. If you're expecting one, it will take longer to receive it. It takes the IRS an average of 278 days (about nine months) from the time the agency receives the tax return to the date the identity theft victim receives their refund, according to the most recent audit of the issue from the Treasury Inspector General for Tax Administration.
Tax-related identity theft can happen to you directly when your SSN has been compromised, but it can also affect you if someone fraudulently claims one of your dependents or steals the SSN of a deceased family member.
Filing your tax return as soon as you can doesn't guarantee you'll beat an identity thief to the punch, but it certainly improves your chances of avoiding the aforementioned fraud issues.
Get Your Refund Sooner
If you're expecting a refund, there's a simple reason to get on top of things early in the year: The sooner the IRS has your tax return, the sooner it can issue your refund. There's not much else to it than that.
The IRS issues about 90% of refunds within 21 days of processing the return. You can check the progress of your refund through the IRS website.
Give Yourself Time to Scrape Together What You Owe
If you need to send the IRS money this year, you may want to know how much you'll owe as soon as possible. Ideally, your tax bill doesn't come as a surprise, but if it does, you don't have a lot of time to arrange your payment.
You must send your tax payment to the IRS by April 15, 2020, because any balance you owe after the tax deadline will accrue interest and fees. Failure to pay penalties start at 0.25% and go up to 25%, depending on how delinquent you are and if you’re enrolled in a repayment plan. If you don’t file your return by the April 15 or by any extension deadline you may have been granted, you also face failure to file penalties.
While you can use a credit card to make your tax payment, that transaction is also subject to processing fees of up to 1.99%—not to mention the interest your credit card may charge if you don’t pay your balance by the due date. (The average credit card interest rate is 21.26% as of January 2020.)
While you can apply for an extension to file your tax return, the extension only applies to the paperwork. You do not get more time to make a payment.
Start preparing your taxes as soon as you receive all your forms to determine what you might owe. This may give you a couple of months to figure out where that money will come from. Here are a few options for coming up with a tax payment:
- Divide the amount you owe by the number of weeks remaining till April 15 and set aside that amount each week, so you have enough cash on Tax Day.
- If you can't afford the above strategy, set aside as much as you can in the short term and cover the rest with savings.
- If you don't have enough in your savings account to pay your taxes or you'd have to dip into your emergency fund to do so, consider applying for a payment plan with the IRS.
See If You Need to Adjust Withholding
Once you prepare your tax return, you'll know how much of a refund to expect, or the amount you owe the IRS. If your tax bill surprises you, adjusting your withholding for the current year can help you avoid a similar shock in 2021.
Use a 2020 withholding worksheet to determine how much you should set aside from each paycheck, and update your W-4 accordingly. If you're not sure how to do this, ask your company's human resources or payroll department for help.
On paper, it makes a lot of sense to get your tax prep out of the way early in the year, but don't overlook the emotional toll of putting off filing your taxes. Wrapping up your taxes well in advance of April 15 means you don't have to deal with the last-minute stress of tax season.
Internal Revenue Service. "IRS Opens 2020 Filing Season for Individual Filers on Jan. 27." Accessed Jan. 27, 2020.
Treasury Inspector General for Tax Administration. "Interim Results of the 2019 Filing Season." Highlights page. Accessed Jan. 27, 2020.
Treasury Inspector General for Tax Administration. "Victims of Identity Theft Continue to Experience Delays and Errors in Receiving Refunds." Page 5. Accessed Jan. 27, 2020.
Internal Revenue Service. "Common Penalties for Individuals." Accessed Jan. 27, 2020.
Internal Revenue Service. "Pay Your Taxes by Debit or Credit Card." Accessed Jan. 27, 2020.