Tax season happens every year like clockwork, but when April rolls around a lot of people are left scrambling.
According to the IRS, about 20 percent of taxpayers wait until a week before the deadline to file their taxes.
Here are some reasons that taxpayers should start the process of filing early rather than waiting until the last minute:
1. Gain access to owed money.
Some taxpayers have too much money withheld from their paychecks each year to cover taxes. When tax season opens, they eagerly anticipate a big refund as if it were a gift from some benevolent uncle (that is, Uncle Sam).
For these people, the reason to file early is simple: They can get their money back sooner rather than later. These people, though, need to think about their practice of giving the IRS an interest-free loan each year.
They may be better off changing the amount they withhold and keeping more of their money throughout the year. By so doing, they can put that money into a bank or investment vehicle, where it can earn more for them.
2. Bypass identity theft.
Tax identity theft is a growing problem for the American taxpayer. The IRS said it paid $5.2 billion in fraudulent identity-theft refunds in 2013.
This year, the IRS included identity theft on this year’s version of its "dirty dozen“ list of tax scams to avoid. Identity thieves use personal information to file fraudulent income-tax returns. They file before the April 15 deadline in an attempt to beat the true taxpayer to the IRS.
It makes sense then to file early to reduce the likelihood that a fraud will beat you to the IRS. If you file a return and the IRS notifies you that more than one return has been filed using your personal information, contact your tax preparer and the IRS Identity Protection Specialized Unit at 800-908-4490.
You should also take the following steps (as if your wallet had been stolen):
File a police report.
Have a fraud alert placed on your credit file.
Contact your bank or financial institution and discuss whether to close existing accounts.
3. Reduce or eliminate errors.
Every year taxpayers err when they file their taxes. My company, Liberty Tax Service, offers free consultations, so I have seen the following errors in past tax returns.
Foul figures: Some taxpayers or preparers enter an incorrect Social Security number or transpose numbers.
Filing foibles: Because there are five filing status options, some taxpayers choose the wrong one.
Deduction downsides: By failing to claim all their credits or deductions, taxpayers end up owing more than they should or getting a lower refund.
When you prepare to file your return early, you give yourself time to review your form and fix mistakes.
4. File for college financial aid.
If you have children about to start college or already enrolled, you may be familiar with the Free Application for Federal Student Aid.
The form, which helps determine financial aid for a child, requires information culled from an income tax return. Although the deadline for the application isn’t until June 30, many colleges and universities ask students to complete the form early to be eligible for financial aid. If your child might be eligible for financial aid, you may want to file your taxes early to accurately complete the form.
In addition, taxpayers should know that electronic filing is accurate, safe and convenient and allows for a refund to arrive more quickly. Yet more than 25 million people filed paper returns for 2013. The IRS commissioner has said that paper filers may wait an extra week – or possibly longer – to see their refund.