Every April, many taxpayers wait until the last minute to file their federal income tax returns. Despite this tendency, there are many reasons to file your taxes early. If you will receive a refund, you may want to submit your return as quickly as possible. Additionally, there are benefits to filing early for those taxpayers who have a balance due.
One of the most common reasons to file taxes early is to receive a faster refund. Filing your return electronically with direct deposit into your bank account is the fastest way to get your refund. It can take up to several weeks longer for paper returns, so it is always better to e-file a return if you want to receive your refund quickly.
Extra time to pay balance due
If you owe a balance due to the IRS, you may still have a good reason to file your return as soon as you can. If you submit your return in the middle of January, you do not have to pay your balance due until the filing deadline in mid-April. Preparing your Form 1040 early will give you time to arrange your payment. This extra time is particularly helpful to taxpayers who need to find out exactly how much they will owe the IRS.
Obtaining financial information
If you are expecting a big life change such as purchasing a house or returning to college, preparing your tax return early can help you obtain essential information. College students use the information from Form 1040 to apply for financial aid, while prospective homebuyers often have to show their completed tax return as proof of their household income. Getting your tax return done early -- whether you owe money or expect a refund -- gives you a head start on the paperwork you will need for these processes.
Avoiding an extension
Filing your tax return early may help eliminate the need to file an extension. Extensions of time are often required as a result of disorganization more than financial need. Some people who wait until the last minute to file their returns simply need time to look for additional deductions or gather receipts. Push the process too close to the filing deadline, and you increase the likelihood that you will need the help of a tax professional to help you sort your finances and complete your return. Even worse, if you file an extension and you owe a balance due, the IRS will charge you interest and penalties on the outstanding tax debt until it is paid in full. Preparing your tax return early in the year helps you avoid this situation.