TAX KNACK
File early for dough, late to collect info
The Money Pros are standing by to take your questions.
Q. The IRS will begin accepting and processing federal tax returns for tax year 2013 on Jan. 31. What are the advantages and disadvantages of filing early?
A. Every year, Americans gear up and partake in our favorite pastime — filing your taxes.
And each year, inevitably, the same question comes up: Should I file my taxes early or late?
There are pros and cons to both strategies. And every taxpayer is different and has a different situation.
As always, I recommend that you consult with a tax professional before you file your taxes.
When to file early
File early if you know for sure that you are getting a refund.
Most people know if they are getting money back or not when they file their tax returns. Some actually use the IRS as a “no interest-bearing savings account.”
They make sure that the government takes out the most taxes during the year so when they file and write off their interest from their mortgage, real estate taxes and children, they get a nice big refund.
Filing early also gets you your refund back faster as processing times are a lot shorter. Basically, the earlier you get your taxes in, the less time it takes to process because of supply and demand.
If you wait until the end of tax season to file, you might find yourself waiting a little longer because the IRS is backed up.
If you owe the IRS money, it would be wise to file your taxes early rather than waiting for the last minute.
By filing early, you will know exactly what you owe the IRS, but you’ll have until April 15 to get the money together.
Knowing early what you owe will give you more time to gather the funds available to pay off your debt and will avoid any unnecessary interest and penalties.
When to wait
You might not have all the information you need.
More often than not, the information needed to file your taxes doesn’t get to you early enough to file by Jan. 31.
That’s especially the case if you have a brokerage account and you had stock sales in that year.
Filing later, or by the filing date, gives you more time to fund an IRA.
Basically, you have until the filing date (usually April 15) to fund an IRA for the prior year.
By waiting until April 15, you have more time to put some money together to fund the IRA.
Some forms are just not available to file your return early.
Every year, the IRS has to wait until our government decides, at the very last minute, what taxes or credits will be voted in for the next tax year and which ones will expire, and to either add another year or two to a credit that was set to expire or give us another year on a break from a tax that has been suspended.
Either way, the IRS has to reprogram their computers to allow for this and reprint tax forms that had already been printed.