Early spring brings bright sunshine, blossoming blooms, tax bills, and plenty of beads and trinkets. In New Orleans, Mardi Gras, unfortunately, coincides with tax season, and tax filing.
Income tax payments can eclipse nearly all other expenses you pay during your lifetime. Nobody enjoys paying them but spending a little time now can help you identify opportunities to optimize your credits, deductions, and future earnings. Fine-tuning your taxes early will help align your cash flow and improve your finances while keeping you ahead of the game.
While we can’t help you out with the crowded festivals and parade going, we can help you make this tax season a smooth, efficient, and painless one. That starts by filing your tax return well in advance of April 15.
You can start filing your 2020 taxes on February 12, which is a bit later than most years due to the stimulus check processing. Today, let’s take a look at the top reasons the early bird really does get the worm. Here’s why filing early can give your finances a boost.
Early filing expedites your tax refund.
If you know a refund is coming, there is no benefit to delaying filing your taxes. Why not get your money sooner? This year, fight those procrastination tendencies so you can get your hard-earned money back from the government as soon as possible.
When you file earlier, you get your tax refund earlier. It’s as simple as that, or is it? While a hefty check from the government may feel like an extra payday, a large refund check is far from a no-strings-attached arrangement.
A significant refund might mean that you’ve been overpaying your taxes each month a.k.a withholding too much from each paycheck, and lending that money to Uncle Sam interest-free. Instead of loaning extra money to the government, you could increase your 401(k) contributions, add to your brokerage account, or fund other long-term savings goals.
If you’re expecting a higher refund check this year, take another look at your withholdings on your W-4. A W-4 tells your employer how much federal tax to take out of your paycheck. They will withhold more or less depending on your tax-filing status. Be sure to update your W-4 if your tax-status has changed (single, head of household, married, etc.).
Do self-employed people use a W-4? No, those who are self-employed need to file annual returns and pay estimated quarterly tax payments (self-employment tax and income tax) with the form 1040.
Other reasons to file early?
- IRS data shows that people who file early see larger returns. Those who file by late February receive about an extra $400 on average—that means right now!
- Some are expecting that money, whereas others simply have more time to take advantage of tax opportunities like deductions and credits when they start the process earlier.
- You may be eligible for the Recovery Rebate Credit if you didn’t receive the full stimulus check. By filing early, you’ll see if your 2020 tax situation would have qualified you for the credit. Time is money, so taking your credits as soon as possible is advantageous. Check with your tax pro to see if you qualify.
It helps protect your refund from theft.
Theft in the time of tax returns is more prevalent than you might think. Most people don’t know that they’ve been exposed to this type of theft until their tax return winds up denied. Scammers attempt to steal identities by filing false returns using your Social Security number.
In 2019, the IRS reported nearly 60,000 fraudulent tax returns worth $345.5 million. While they were able to prevent about 93% of those cases, $24 million remained outstanding.
And that’s just tax returns, there are several other ways scammers try to get money from phone calls to emails to phishing and more. How can you protect yourself from scams at tax time?
Keep these tips in mind:
- You won’t ever receive an unsolicited email, text, or social media message from the IRS. The IRS is old school and sticks to mailing for their communication—trust us, their first communication will never be by phone.
- Many scammers use scare tactics and demand upfront, over the phone, or email payments.
- The IRS won’t ever specify how a payment should be made like a prepaid debit card for example.
- The IRS won’t threaten to bring in law enforcement for unpaid bills but scammers might.
How can early filing help you avoid theft? Filing early limits the window for scammers to use your Social Security number.
Be sure to protect yourself, especially around tax time. While filing early doesn’t eliminate this threat, it does help protect your refund.
Assists in planning for a significant tax bill.
Was your income much higher than expected? Did you realize more gains in 2020? Did you take advantage of Roth Conversions? If so, you might find yourself with a higher than the normal tax bill.
Filing early gives you more time to make a plan for paying it off. Instead of draining your emergency fund or tapping a HELOC, you give yourself a couple of extra months to save up the cash needed to pay your bill. If needed, the IRS also offers a payment plan, which is likely preferable to using your emergency fund.
Higher tax years are another way that a healthy cash reserve comes in handy. Use your tax return this year to make intentional adjustments for the next filing season.
Filing early grants better access to your tax professionals.
With 20-25% of taxpayers putting off filing until two weeks before the tax deadline, it’s safe to say most tax professionals become inundated with returns. Filing early helps you and your trusted professionals limit the tax-frenzy.
We always offer you a second set of eyes to help review your taxes with your tax professional before you hit submit. Together, we can catch mistakes that may have been overlooked in the seasonal tax push. This helps prevent the need to amend or restate returns.
We work closely with your tax professional to plan for your tax return today and build a proactive plan for tomorrow.
Bonus: When it comes to the IRS, send certified mail.
The IRS’s favorite form of communication? Certified mail.
When you receive a notice or audit from the IRS it’s almost always in a certified letter. It’s usually best to meet the IRS where they’re at and send in any payments or tax returns via certified mail. That way, you’ll receive a confirmation when your payment or tax information arrives.
Take our word for it, certified mail is the way to go, especially in 2021.
Ready to tackle this tax season together? Set up a time to have our team take another look at your return today.
The post Here’s Why You Should File Your Taxes Early This Year appeared first on Bienvenue Wealth LLC.