With the Federal tax deadline of April 18th in 2016 (or April 19th for taxpayers in Maine and Massachusetts), individual taxpayers get a little extra time to file their 2015 taxes. But are there benefits to waiting to file taxes?
Here’s a look at the “pros and cons” that come with filing taxes early, versus right on time.
The Pros:
- Early filers could get deeper tax prep discounts. If you use plan to use a tax preparation software like Turbo Tax or H&R Block, you could get a deeper discount for filing by February–at least based on past promotional offers.
- Professional fees could be less. If you use a tax preparer or certified public accountant, being proactive with your tax prep could lower what you ultimately pay for professional help. According to the National Society of Accountants, some tax preparation and CPA firms charge clients who need to file an expedited return about $90 more than those whose taxes are completed well before the deadline.
- You could get your tax refund sooner. The Internal Revenue Service (IRS) will begin processing filed tax returns beginning January 19, 2016. Though discrepancies and inaccuracies in your tax return could delay your tax refund, being an early filer may mean your return is among the first of the 150 million tax returns the IRS will process. If you anticipate a sizable tax refund that you’ll use to invest or pay off debt, there could be additional financial benefits to having your refund in hand long before April.
- You’ll know what you owe sooner. Filing a tax extension until October doesn’t mean you have an additional six months to pay what you owe. The IRS offers tax payment assistant programs for individuals and businesses who don’t have the cash on hand to pay taxes owed in full, but they carry interest charges, and potentially, fees and penalties. You’ll be better equipped to plan accordingly for your tax payment by knowing what you know what you owe long before it’s due.
- You could lower your tax burden. Taxpayers have until April 15, 2016 to contribute to Traditional and Roth IRA accounts for the 2015 tax year. Because some or all of your retirement contributions may be tax deductible based on your modified adjusted gross income (MAGI), employer retirement plan and filing status, knowing where you stand before April 15 may mean the ability to reduce your overall tax burden.
- It lowers your chances of tax refund theft – As discussed in the previous blog post, tax-identity theft is a real problem the IRS is addressing this year. Generally, the scam works whereby a person with your personal information files a tax return on your behalf and steals your refund. However, if you file before they do, there is nothing to steal.
The Cons:
- You risk having to file an amended tax return. Financial institutions were given a deadline of February 15, 2016 to mail forms related to sales of stock, bonds or mutual funds, or real estate transactions. Businesses are required to mail W-2’s to employees and 1099-MISC forms to contractors not considered employees by January 31, 2016.
But not all mail arrives as expected, not all small businesses will meet the deadline—and not all forms will be correct compared to your data. If the information in one of those documents contradicts what you filed (also reported to the IRS by the issuer), you could have to file an amended tax return.
Based on the tax prep tool you used to file originally, that could mean additional fees to amend the return. Because many online tax preparation tools won’t allow you to file an amendment electronically, amending a tax return may also involve a long wait at the printer, and post office.
Panic creates mistakes. Basic math and calculation errors are among the most common reasons tax returns are filed with inaccuracies. Being in a hurry to complete your tax return when you’re up against the filing deadline increases the likelihood that you’ll make silly mistakes—which could lead to tax audits.
