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Here is a reprint from a very timely article.
By Trent Hamm January 21, 2014 1:15 PM
People like to wait until the last minute to file their taxes. The reason is obvious: Filing taxes can be pretty dull. It’s not a task that anyone relishes, and because of that, people often put it off for as long as they can.
Of course, putting it off as long as you can creates its own problems. The last-minute panic of doing taxes can be incredibly stressful and cause you to deeply regret your choice to wait.
At the same time, there are several incentives to do your taxes earlier rather than later. Here are three of the biggest reasons why you should start on your taxes as soon as your 1099s and W-2s arrive in your mailbox.
1. There’s more time to deal with problems. No system is perfect. Sometimes, when you’re filing your taxes, you’ll discover a serious problem. Maybe there’s an obvious error on your W-2. Maybe a company failed to send you a 1099 for the work you did. Maybe you sold some stock, and you’re completely unsure as to how to add them to your taxes.
The earlier you start working on your taxes, the easier it is to address the problems that might pop up. You have time to figure out how to handle a complicated tax situation. You have time to request a corrected tax form. You have time to contact an employer or a bank and make sure they send you a 1099 or a W-2.
If you wait until the last minute, these mistakes are going to throw you into crisis mode, and you’ll find yourself filing an extension, which just postpones the problem even more and leaves you at risk for penalties and liabilities.
2. You’ll receive your refund earlier. If you are due to receive a refund, the earlier you file your taxes, the earlier you’ll receive your money in the mail (or electronically).
Not only does this mean you’ll get your cash in hand sooner, it also means you’ll spend less time giving the government an interest-free loan, which is exactly what you’re getting back when you receive an income tax refund. You can start putting that money to work for you instead of leaving it in the hands of the government where it’s not helping you at all.
If you wait until the last minute, you will be at the back of the line for refunds. It’s also likely that the time between filing your taxes and receiving your refund will be even longer because of the slew of people filing at the last minute.
3. If you have to pay, you’ll know exactly how much you owe. For some small business people or independent contractors, income taxes means writing a check to the government. This isn’t fun, of course, but it does become easier if you know exactly how much you owe as early as possible.
Of course, it doesn’t make sense to actually pay the taxes early. You want to wait until close to April 15 to pay so that the money you’re paying sits in your accounts, earning interest or dividends. You want that money working for you.
By filing early, you can have the best of both worlds. You can figure out exactly how much you owe, but you don’t actually have to submit your payment until April 15 – allowing you to figure out what you owe early while giving you plenty of time to get your accounts in order to pay that amount.
The bottom line: No matter your tax situation, it makes sense to get your filing done early. Doing so helps protect you from mistakes, gets your refund in the mail quicker and helps you assess how much you owe while giving you time to make the actual payment.
So once your tax forms arrive, get on the task of filing your taxes as soon as possible.
Trent Hamm is the founder of the personal finance website TheSimpleDollar.com, which provides consumers with resources and tools to make informed financial decisions.