Do you file your taxes as soon as your documents arrive in the mail, or sometime in April? It’s open season right now. Here are eight reasons why, when it comes to filing taxes, sooner is better than later.
1. FAFSA Forms
This time of year, if you’re a parent of a college student, you may be filling out the Free Application for Student Aid (FAFSA). This form requires your tax information from the prior year. While you can provide an estimate only, it’s usually better to have the actual information.
2. Invest in Your IRA
If you traditionally get a refund, you can use it to invest in an IRA, which counts as a deduction for the prior year. For example, if you invest $5,000 into your IRA by April 15th, you’ll get a deduction, and you could save yourself another $1,500. You’re basically using your overwithholding to increase your refund by making that contribution by April 15th.
3. More Deductions
Filing early provides buffer time to find more deductions. Perhaps you have made some contributions that you thought weren’t worth the paperwork to claim, then while filing, learn that you’re going to owe some money. You should allow yourself buffer time to dig deeper into your document picture, should the need arise.
4. Payment Plan Arrangements
Another reason to file taxes early is that you’ll have more time to make arrangements for any payment plans. The IRS does extend payment plan options, but if you’re trying to do this at the last minute because you didn’t file until April 15th, it’s very difficult to implement the payment plans that are available to you.
5. Self-Employed Retirement Plans and Health Savings Accounts
Do you work for yourself? If you haven’t opened a self-employed retirement plan yet, now is a great time. When you file early, you allow yourself time to open and fund a new account. If you’re too close to the deadline, that opportunity is no longer available.
You can also learn whether or not if you can make additional contributions to your health savings account — which again, you only have until April 15th to do.
6. A Real Conversation with Your Tax Preparer
Early returns allow tax preparers time to really talk with you at the most convenient moment, when the tax issues are on your mind. We’re pulling out the documents, putting the return together, and we can take the time to talk about what happened last year and how to plan better for the next.
7. Space Between Balance and First Payment Due Dates
If you have a balance due, and you are making quarterly payments, that first month can be difficult, because on April 15th both are due at the same time. By filing taxes early, you can spread out those payments. It can be very peaceful in terms of adjusting your checkbook.
8. Better Weather
And let’s not forget that by filing early during the winter months, you can enjoy the nice month of April, instead of being stuck indoors, thinking of what you could have done during lousy weather.
Do you have any questions or concerns? Ready to file?
Susan A. Moussi
SMD Tax & Divorce Financial Planning Consultants, Inc.
Phone: 614.429.4172 firstname.lastname@example.org.