To file a yearly tax return is unavoidable for millions of people in the United States. However, the IRS granted everyone until July to file their tax returns last year because of the COVID-19 pandemic. Since no such extension has been offered this year, you will have until April 15 to submit your forms.
However, just because you have the option of filing later does not mean you should. To file early this year, you must do it in February. In February, the IRS will accept returns for the 2021 tax year.
Early filing can result in a more accurate return, more time to pay a tax payment, and a lower risk of identity theft related to taxes. In addition, there is no reason to wait for individuals with simple tax returns.
This article will see why claiming tax returns early on is beneficial and how can AOTAX help Indians working in the US.
Why File Taxes Early?
Although many taxpayers file their tax returns on or before April 15 each year, there is no need to put it off until the last minute. Indeed, submitting your tax return early can make sense for several reasons, including obtaining your refund faster and reducing your risk of identity theft.
Even if you don’t file early, there are compelling reasons to start your tax planning as soon as possible. For example, it offers you the time you need to gather the documents and information you’ll need to claim all of your deductions—avoiding the stress of rushing for receipts at the last minute.
The Benefits of Filing Taxes Early
There are several advantages to filing tax returns early instead of waiting until Tax Day:
1. File early for a faster refund
You may prevent procrastination, get peace of mind, and cross this critical item off your new year’s to-do list by filing early. So, why not submit yours once the IRS announces that it will begin processing returns?
The IRS issued refunds to 129.8 million filers for the 2020 filing season, averaging $2,815 per refund. There’s no reason to let the government keep your money for any longer than necessary if you have money flowing to you. In addition, because the IRS will not be as busy early in the tax season as it would be in April, filing sooner means a faster refund.
Some people rely on their tax refunds to cover significant expenses. If you file early, you’ll get the money sooner and avoid having to take out an expensive short-term loan to meet those charges, which is especially important if you’re still paying off your holiday obligations.
2. File early to avoid identity theft
The sooner you file, the less time a fraudster has to file in your name and steal your money. This can cause havoc, especially if the fraudster claims bogus deductions, fails to declare income, or otherwise taints a tax return filed in your name.
It might take months to clean up a mess like this. Unfortunately, you may not realize you’ve been a victim of identity theft until the IRS alerts you to a potential problem with your tax return. The IRS warns that you should be on the lookout for tax-related identity theft if:
- According to IRS records, you have to pay money for an employer you did not work for.
- Due to a duplicate Social Security number, you cannot e-file your tax return.
- When you haven’t taken any action, you receive an IRS notice that your current online account has been accessed or disabled.
- You get a notice from the IRS that an online account in your name has been created (and you did not make it.
- You receive a letter from the Internal Revenue Service (IRS) inquiring about an unfiled tax return that appears suspicious.
- You get a tax transcript in the mail even though you didn’t ask for it.
- You receive notification from the IRS that you owe extra tax or that your refund has been offset, or that measures have been taken against you for a year in which you did not file a tax return.
- You were given an Employer Identification Number (EIN) even though you didn’t ask for one.
3. File early to avoid the tax-season rush
Filing early allows you to fully comprehend any changes in tax legislation and deal with life situations that may affect your filing status. Last-minute mistakes can result in audits, resulting in penalties and interest. This premise is more essential than ever, given the Tax Cuts and Jobs Act (TCJA).
Your certified public accountant (CPA) or other tax preparers will be less busy than in April in January and February. Early access implies your CPA will have more time to properly analyze your case and assist you with your tax return.
You will need information from your most recent tax return, whether you’re purchasing a house or going back to school (and applying for financial aid). You will have the most up-to-date information if you prepare your taxes early.
4. Avoiding amended returns
You’ll have more time to file a correct return if you start early. An incorrect return will most certainly be rectified. Audits are more likely to occur when returns are amended.
Here are some things to keep in mind as you strive for precision:
- Official documents contain errors. W-2s, 1099s, interest statements, and anything else used to substantiate a deduction should all be checked. In addition, mistakes are made by businesses, banks, and financial organizations. Before you file, ensure you correct any such errors.
- Early filing may result in the loss of essential documents, such as a 1099 or K-1 that arrives late. Therefore, double-check that you have all the necessary documents before clicking “submit” or dropping your return in the mail.
- Amendments that are not complete. If you have to change your return, don’t just fix the parts that benefit you. Anything incorrect should be corrected.
- Changes to tax forms. Form 1040 has changed due to the Tax Cut and Jobs Act (TCJA) of 2017. If you previously filed Forms 1040-EZ or 1040-A, you will no longer be able to do so. If you’re above the age of 65, you can now use the new 1040-SR “U.S. Tax Return for Seniors”.
- Legislation enacted before April 15 may not be implemented into paper tax forms or outdated tax software. So keep an eye on the news. Also, keep an eye out for any alterations that may have gone unnoticed. You can file an updated return if necessary.
5. Time to save
If you owe the IRS money, filing early provides you more time to save. However, even if you owe the IRS money, there may be a compelling reason to file your tax return right away.
You don’t have to pay any taxes you owe until the filing deadline if you file your return in the middle of January. However, if you prepare your Form 1040 ahead of time, you will have more time to coordinate your payment.
In addition, those that need to calculate out how much they will owe the IRS will benefit from the extra time.
Waiting to find out you owe more than you anticipated could put a strain on your finances. So, to avoid an unexpected tax bill, the IRS recommends monitoring your withholding and tax payments in the fourth quarter of the year.
6. Avoiding a tax extension
If you file your tax return early, you may not need to file an extension. Rather than being a financial need, time extensions are frequently required owing to disorganization.
Some people who wait until the last minute to file their taxes simply need more time to hunt for more deductions or gather receipts.
If you rush the process too close to the deadline, you’ll almost certainly need the assistance of a tax professional to help you organize your finances and file your return.
Even worse, if you file an extension but don’t pay what you owe if there is a balance owing, the IRS will charge you interest and penalties on the unpaid tax bill until it is paid in full.
What Happens If You File Your Taxes Late?
Most people have until April 15 to file their federal income tax returns and pay any taxes they owe. However, the IRS is authorized by law to impose penalties on taxpayers who fail to file a tax return or pay taxes owed by the due date. In the absence of reasonable cause, a failure to file a penalty is assessed on returns filed after the deadline or extended deadline.
What are the consequences of filing taxes late?
Is a penalty imposed by the Internal Revenue Service for not filing taxes on time? Yes, there is:
- For each month or part of a month that your return is late, the combined penalty is 5% (4.5% late filing and 0.5% late payment), up to a maximum of 25%.
- The late filing penalty is imposed on taxes that are not paid by the due date. Therefore, the total tax displayed on your return fewer amounts paid through withholding, estimated tax payments, and allowable refundable credits equals unpaid tax.
- If you still haven’t paid after five months, the failure to file a penalty will be increased to 25%; however, the failure to pay fine will remain in effect until the tax is paid.
- Failure to file and pay results in a total penalty of 47.5% of the tax (22.5% late filing and 25% late payment).
- If your return is more than 60-days late, the minimum penalty is the lesser of $435 or 100% of the tax that must be declared on the return.
The Bottom Line
Many people wait until the last possible moment to file their federal income tax returns every year. Despite this tendency, there are several reasons to file your taxes as soon as feasible.
You should file your return as quickly as possible if you are eligible for a refund. There are additional benefits to filing early for individuals who owe a balance.
Are you looking at filing your taxes early? Then, AOTAX can relieve you of this burden by filing your Tax Returns for you.
We are Registered Tax Agents with vast hands-on expertise, and we take great pride in assisting our clients in achieving their objectives. Thanks to a team of highly skilled and experienced Tax Accountants, we do everything we can to reduce your tax liability while making the overall taxation process as efficient, simple, and cost-effective as possible.
The person you refer and who pays taxes through our services is also eligible for this referral bonus. This bonus amount can be used to deliver their tax services or exchanged for an Amazon gift card.Contact us if you are an IT professional working in the USA and looking at filing tax in the USA.