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5 Reasons to File Your Taxes Early

5 Reasons to File Your Taxes Early

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Published by: Senthil Nathan on Feb 10, 2012
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5 Reasons to File Your Taxes Early

There are numerous things you can do throughout the year to make completing your return simpler and perhaps less costly, such as organizing and tracking tax-related receipts, maxing out contributions to your IRA and 401k, and making as many tax-deductible donations as you can afford. However, for a number of reasons, it's also important to file your return as early as you can. [See Take Advantage of These Tax Breaks.] 1. Save money. When it comes to managing your finances, there is nothing worse than having a large bill arrive unexpectedly in the mail. Therefore, if you think you may owe a significant amount this year, you'll be better able to set aside the needed funds to pay the bill by filing early. In turn, this will help you avoid penalties and interest from making a late payment or not being able to pay in full on time. After all, just because you file early doesn't mean you have to pay early. On the other hand, even if you know you will receive a refund check, early filing will allow you to receive your refund faster and use it to pay down or pay off costly bills and high interest loans, which can save you money on interest and fees. [See What to Do If You Can't Pay Your Tax Bill.] 2. Reduce stress. Gathering the necessary records, spreadsheets, and forms to properly file your taxes can take longer than you think, especially if you're poorly organized. By starting the process now and filing sooner rather than later, you're less likely to make crucial mistakes, such as forgetting to include commonly overlooked tax deductions, because you won't be rushed. Leaving yourself extra time to review your tax filing for errors is especially important if you file your own taxes. 3. Good help is easier to find. Finding a qualified tax professional well in advance of the filing deadline is fairly simple. But once the heart of tax return season hits and the deadline rapidly approaches, accountants and other tax professionals will have far less time to take on new clients. And even if you have an established relationship with an accountant, they'll have more time to devote to your return if you schedule with them early in the year. 4. Receive your refund faster. Obviously, if you file your return in February, you will receive your check earlier than you would if you file in April. However, the net wait times are also much shorter. The longer you wait to file, the longer it takes to get your tax refund check. 5. Give yourself a grace period. Filing early gives you a built-in grace period that can be a huge help in certain situations. For example, if you file early and later identify an error, you still have time to amend your return before the deadline. Realizing that you made a mistake on your return after the deadline passes can result in penalties and interest on the unpaid amount.

000 or less. [See 50 Ways to Improve Your Finances in 2012. including taxes and budgeting tips.[See How to Avoid an IRS Audit. . David Bakke writes about money management. federal income tax prep and electronic filing program for eligible taxpayers.] The IRS has a Free File mini site with information on free filing options. you need to consider the cost of your state tax return because there usually is a charge to file it. The Free File program is open only to taxpayers with a 2011 adjusted gross income of $57. About 70 percent of taxpayers have an AGI of $57. meaning most taxpayers can use the free file program.] Final thoughts: If you know you'll owe money to the government this year. Those who don't qualify have other free or low-cost options. This will increase your take-home pay as well. there are online tax companies that allow you to e-file your federal tax return for free regardless of your income. [See 3 Tax Apps That Save Time and Cash. Free File is a free. it is a wise decision to file early. The majority of taxpayers can use free tax software to prepare and e-file their taxes for free. it may be advisable to hold off sending in the check until closer to the deadline. If you typically receive a large refund. Of course.000 or less. but if you would like to reduce the cost of tax preparation. you won't want to pull it off-duty too soon. If you qualify. you can use the IRS Free File wizard for help choosing a free file company. They are usually able to do this because they charge to file your state tax return. you do not need to worry about this. you have several options. It can cost hundreds of dollars to have your taxes prepared for you. How to Save on Tax Preparation By ANDY HOUGH January 20. on the Money Crashers personal finance blog. 2012 RSS Feed Print The Internal Revenue Service opened the 2012 electronic tax return filing season on January 17. developed through a partnership between the IRS and the Free File Alliance. Whether you qualify for Free File or not.] Even if your AGI is above the limit. This will give you a period of time to set aside the necessary funds. if you are from a state with no income tax. consider adjusting the withholding allowances on your W-4 so you're not overpaying your taxes throughout the year. a group of private-sector tax software companies. However. and especially if your money is making money via interest.

but the cost will vary considerably depending on the complexity of your return. adding a few days (assuming it isn't lost). An incorrect tax return could cost you thousands and make the few bucks you saved going with a cheaper tax preparer look like chump change. When you deposit that check. the money is deposited the moment it's ready. [See Take Advantage of These Tax Breaks. The drawback to this option is that you need to understand how to prepare your return and it does not include a state option. but not having to pay to have your taxes prepared makes the task a little more palatable. that check has to be printed and mailed. By having an emergency fund. and when you are finished you can e-file your return for free.] If none of the free filing options work for you. you have a safe pool of cash . a six-month emergency fund to help you weather difficult times. Doing your taxes is not a pleasant task. though--you should check out their qualifications. use part of your tax refund to start or boost your emergency fund. You shouldn't just go with the cheapest preparer. which takes even more time.] Emergency fund.Another option for free e-file is the Free File Fillable Forms. 2012 RSS Feed Print As we enter the heart of tax season. These forms are similar to doing a paper return but they are online. First. many taxpayers will soon find themselves with a large chunk of money. If you elect to receive a check. If you do have your tax return prepared professionally. avoid getting a refund anticipation loan or refund anticipation check because those options are extremely expensive. Experts recommend that you have. Here are four ways your tax refund can make a big impact in your financial life. and it's easy to spend but not have much to show for it. [See How to Get the Saver's Credit. An online search can give you an idea of how much preparing a tax return should cost. at a minimum. The average tax refund last year was more than $3. 4 Smart Ways to Spend Your Tax Refund By JIM WANG January 31. then you need to find a tax preparer. it needs to clear. That's a lot of money.000. If you don't have an emergency fund or you don't have an adequately funded one. They are not necessary because you can get your refund in a little over a week if you e-file and have your refund direct deposited. make sure you set up direct deposit so you get your refund as quickly as possible. Emergency funds are an important financial tool because they insulate you from unexpected financial shocks. When you establish direct deposit.

Pay down debt. If you are without debt and have an emergency fund. especially on high-interest credit card debt. Roth IRAs take after-tax contributions. and rewarding yourself for doing the right thing reinforces that good behavior. you should take a look at your debts and pick one to pay down. Traditional IRAs take pre-tax contributions. Reward yourself for bolstering your emergency fund or paying down debt by treating yourself to a nice dinner or buying that gadget or gizmo you had your eye on. If nothing else.] Fund your IRA. You can use part of the tax return to pay any closing costs that might be associated with the refinancing. this might be a good time to take another look.com. If you have a mortgage and have considered refinancing. but a lower interest rate means you pay less in interest over the long run. In deciding where to put your emergency fund cash. By paying off some of the principal using this newfound money.available to respond to problems. Keep it in a safe place. When he's not tackling money issues. you give yourself an advantage in catching up. you can always put it toward your next vacation. you may have to rely on credit cards. funding your IRA with your tax refund is on option you should consider. so you get no immediate tax benefit for contributing. Jim Wang writes about personal finance at Bargaineering. Finally. consider taking advantage of 0 percent balance transfers. If you are getting close to paying off the debt. All work and no play is no fun. so you get an even bigger jump during the promotional period. I recommend high-interest savings accounts. Don't put it in the stock market to try to get a few extra percentage points in gains--that's way too risky. Have fun. [See 4 Tax Breaks of Homeownership. You're not really paying down debt in the traditional sense. 50 Ways to Improve Your Finances in 2012 A guide to mastering your money in the new year . but you pay taxes when you take disbursements from the IRA. he's usually looking forward to his next vacation and writing about it at Wanderlust Journey. especially if your budget has been stretched to the limit. so you get a deduction if you qualify. acts as a weight on your finances. take a little bit of that return and have some fun with it. but the growth is completely tax-free. but it's often difficult to find the money to put into those accounts. Paying double-digit interest rates drag down the growth of your net worth because a percentage of your income has to go toward servicing your existing debt. which come with high interest rates. Without one. Debt. which can magnify the original emergency. Contributing to a traditional or Roth IRA is a great way to invest in yourself and your retirement. especially higher-interest credit card debt. After bolstering your emergency fund.

By KIMBERLY PALMER December 21. this 50-step guide is designed to help you improve every aspect of your financial life. For those struggling to make better money decisions. "If they don't excavate what they believe and their sense of worth. She found that focusing more on the motivation behind a goal instead of the specifics of how it will be achieved can increase the likelihood of success. start saving more money. "How's your relationship with George?" she asks. life coach Christine Hassler suggests thinking about money as if it's a person. according to research by Julia Belyavsky Bayuk. [In Pictures: 10 Ways to Give Your Money a Makeover. referring to President George Washington's face on the $1 bill. from overall security to specific saving and spending strategies. an assistant professor at the University of Delaware. Rethink your relationship with money." Planning exactly how you will reach a goal. Whether you're ready to ramp up your earning power. such as saving more money. she encourages readers to first examine their history with money. can actually make it harder to reach that goal. 2.] 1. 20 Everything. That's partly because having a more "abstract" mindset can help people deal with unexpected challenges along the way. Focus on the "why" of your goals instead of the "how. In her book 20 Something. they are unable to progress. That history includes ." she explains. or manage what you have more effectively. 2011 RSS Feed Print • • • • • Comment (11) Tweet (79) Related Articles • • • 10 Ways to Improve Your Finances Celebrities with the Biggest Money Problems Mastering the New Freelance Economy In Pictures: 10 Ways to Give Your Money a Makeover A new year offers a fresh start.

according to research from the Columbia Business School and University of Chicago Booth School of Business. . People who feel connected to their future identities are more likely to delay gratification. Plan a comeback.one's financial situation growing up and patterns of spending. turned his life around after running up $5. A lot of people have struggled over the past few years. [See 6 Steps to Dig Out of Debt. 3. since he's living proof to clients that it is possible to make a complete comeback. Jude Boudreaux. follow up with your card company—it could be the first sign of identity theft. He did it by ruthlessly cutting out "extras" in his budget so he could focus on his bigger financial goals. including getting out of debt. Financial accounts often come with monstrous amounts of paperwork. 6. The first step to fixing a dysfunctional relationship with money is to acknowledge its existence. and just how similar it is to your current self. You'll probably need to hang on to important documents (some states require taxpayers to keep up to 10 years of filings on hand). such as birth and marriage certificates. Protect your privacy. but much of your old paperwork belongs in the trash or the shredder if it has valuable information on it. 4. who now works as a certified financial planner in New Orleans. but that downswing doesn't have to be permanent. in an archival box or a locked metal file cabinet that's separate from your day-to-day files. Get organized. Store your most important documents.000 in credit card debt in college. Visualize your future self. and if you ever notice a suspicious charge on your credit card. Never give it to a solicitor on the telephone or in an email. The researchers offer a relatively simple way to do this: Take a moment or two to meditate on your future self. question if it's necessary to share it. Whenever someone asks for your Social Security number. Today. such as bank account numbers. Boudreaux says his past struggles are an asset.] 5.

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