5 Reasons to Begin Tax Preparation Long Before April 15
U.S. Supreme Court Justice Oliver Wendell Holmes, Jr. once said, “Taxes are what we pay for civilized society.” That may be true, but no one enjoys paying them.
This disdain for taxes leads many people to put off preparing their tax returns until the last possible moment. Changing tax laws can also complicate completing taxes on your own. The last two years offered some government-sponsored procrastination because the Internal Revenue Service (IRS) extended its usual due date.
Like most things we avoid, taxes eventually must be completed. Racing against the deadline brings with it considerable anxiety. It may seem counterintuitive, but preparing your taxes early is less stressful.
Keeping your blood pressure from skyrocketing is far from the only benefit of getting a handle on your taxes. We’ll look at five benefits to early tax preparation.
Benefit 1: Reduce Identity Theft
The U.S. Department of Justice (DOJ) calls the practice SIRF – Stolen Identity Refund Fraud. Criminals use stolen identities to steal money from you and the U.S. Treasury by filing fake tax returns that claim tax refunds. The DOJ recently successfully prosecuted a case where a Texas man was sentenced to 70 months for conspiring to commit wire fraud, wire fraud, and aggravated identity theft, in connection with a scheme to file false tax returns using stolen identities. SIRF is more challenging if you prepare and file your taxes early, beating would-be fraudsters to the filing. If their fake return gets to the IRS first, it can be processed, and refunds made. Then, when your legitimate return arrives at the IRS, the system rejects it. The resulting confusion can take months to iron out.
Benefit 2: Get a Larger Refund
Getting your return done early can result in a bigger refund. Why? That may be because those scrambling at the last minute to meet the tax deadline often miss valuable deductions or credits. A professional tax preparer is often not available at the 11th hour, so you can be stuck trying to figure it out on your own. If you aren’t aware of all the nuances of tax law, you could be cheating yourself out of a refund or causing yourself to pay more in taxes. Starting early gives you the time to file an accurate return. An inaccurate return will likely become an amended return. Amended returns invite audits. And if you are getting a refund, the earlier you file the earlier you will get the refund.
Benefit 3: Reduce Your Tax Obligations
Strategic tax advice and planning can help minimize your tax liability in the years ahead as well as potentially find ways to cut your burden this year. If you get a big head start and begin to evaluate your taxes before Dec. 31, you will see if making a few immediate changes can reduce your tax burden. Before the end of the year, you still have time to estimate capital-gains distributions, harvest losses, contribute to a 529 savings plan, or make last-minute charitable contributions. Understanding where you stand early in the game also provides the opportunity to shift deductible items such as property taxes and business expenses. You have a few more months – until the tax deadline – to add to your retirement account for 2021. You can also maximize contributions to a company 401(k) and make deposits to your health savings accounts.
Benefit 4: Prepare for Paying What You Owe
Keeping your head in the sand will not make your tax bill go away. For those who owe money to the IRS, completing tax forms early provides time to plan for how to pay the bill. Your best strategy is to understand as early as possible what you owe so you can immediately begin to make adjustments to your budget to earmark funds to taxes owed. Remember that filing your taxes early doesn’t mean you have to pay your taxes early. Payment isn't due until Tax Day.
Benefit 5: More Focused Attention
Starting earlier also gives you more time with your tax professional. Since many people wait until later in the tax season to take their documentation to a professional, you are competing with fewer people for their attention. It will be much easier to schedule appointments with tax preparers in January versus early April. Unless you know tax law, an experienced tax attorney can identify deductions and other cost-savings that you otherwise wouldn’t know. Those with complicated taxes will benefit from the experience of a tax attorney who can help them avoid future tax problems and minimize the chance of audits.
How to Prepare for Filing Taxes
The first step in tax filing preparation is to gather important documents that your tax preparer will need. You should also schedule an appointment with that person as soon as possible. The documentation gives them a basic understanding of your tax picture, but they will also ask specific questions to ascertain other facts that could help lower what you owe.
The documents you may need to file your return include the following:
- W-2 forms from wage-earning jobs
- 1099 forms from independent contractor or gig work
- 1099 forms from retirement, brokerage, or dividend income
- Mortgage and property tax statements for itemizing deductions
- Charitable donation receipts and copies of medical bills for itemizing deductions
- Business expense receipts for Schedule C business deductions
- K-1 form for partnership income
Getting started now is even more important because the IRS is not offering the longer extensions Americans enjoyed the last two years. Tax Day in 2020 was July 15 and Tax Day in 2021 was May 17. You will, however, get an additional weekend to wrap up your return. Emancipation Day on April 15, 2022, is pushing the tax filing deadline to Monday, April 18, 2022.
If you are completing your taxes on your own, you could be getting a smaller refund than is owed or paying more than you should. At Scaringi Law, we offer comprehensive legal counsel in Pennsylvania, including tax law. Not only can we prepare your tax return, but our tax lawyers also resolve tax issues, help with tax audits, advise on tax and estate planning, and offer tax services for small and medium-sized businesses.
Resolve to prepare your tax return early. Schedule a free consultation with one of our lawyers. Call us at (717) 775-7195 or use our online form to get started.