Tax Season is right around the corner! 📝
From scrambling to find receipts to getting all those docs together, there are endless reasons why you might want to push off filing your taxes this year.
To help fight that feeling, we’ve put together a handy list with 8 reasons why you should get a jump start on filing – even if you simply don’t feel like it:
- 2020 taxes might be more complicated than usual
- It could help protect your identity
- You’ll need it if you’re going back to school
- Your tax guru will be less busy
- It could help you receive a refund quicker
- You could receive money back in the form of an Earned Income Credit
- You’ll be ready in case there’s a second stimulus check
- You’ll have more time to save if you do owe Uncle Sam
- How early can you file your taxes?
2020 taxes might be more complicated than usual
We want to be real with you. 2020 was not normal by any means. And if you filed for unemployment benefits, received an economic stimulus check, or started side hustling, prepping to file might make your 2020 taxes a bit more complex.
Not to mention, there are new credits and tax deductions that might make doing taxes a more confusing jumble. Which is exactly why this is a better year than ever to get started ASAP.
Plus, if you give yourself plenty of time, that lowers your odds of making mistakes, which could prove to be a real headache, or cost you fees in the future.
It could help protect your identity
Tax season is a peak time for fraudsters to steal things like your Social Security Number and file bogus tax returns to score a refund. But by filing early, you could prevent yourself from falling prey to these internet thieves, explains Tyler Dolan, a certified financial planner, and vice president of Keenan Financial.
“You don’t want to file their tax returns only to find out there’s already been one filed under your Social Security number,” says Dolan. “It can be an alarming wake-up call, and there are a few new hoops to jump through to fix the problem.”
There are a handful of tactics fraudsters use to steal your identity. A very common one is phishing. It’s when a phony website is set up, pretending to be an IRS site. You put in your personal information — and boom! Your Social Security Number is now in the hands of an ID thief. To see more tax scams and tactics, check out the IRS site.
You’ll need it if you’re going back to school
If you plan on going back to school in 2021 and applying for the FAFSA, you’ll need your tax info on hand. And since the application process can be a Mothra-sized monster in itself, having tax files is a smart way to prep.
Plus, since there’s only so much financial aid to go around, the earlier you file a FAFSA, the better your odds of being awarded some money. And as inputting wrong data is a common mistake folks make when filling out the application, you’ll want to be super-duper meticulous.
What’s more, you can reduce errors by using the IRS data retrieval tool. This free tool automatically pulls information from your tax return. (Mind blown, amirite?) However, do keep in mind that you can only use this nifty tool if you filed your taxes.
Your tax guru will be less busy
Truth: most folks scramble to get their tax returns in by the deadline. If you file in say, January or February, chances are your accountant, or tax prep centers like VITA won’t be clogged up. In other words, you’ll likely have some quality time to get your questions answered and a more thorough experience with a tax pro.
As 2020 might’ve made your tax situation more complicated, tax professionals will most likely be busier. Even if you aren’t planning on working with a pro, filing early means more time to look things over. This is especially important because when something gets reported incorrectly or is missing information, you’ll need to do what’s called an amended tax return. An amended tax return could equal more hassle and more dollar signs.
And should you later realize you owe more taxes than you originally thought, you’ll not only need to shore up that cash quickly, but it could also mean getting dinged with interest and fees.
It could help you receive a refund quicker
Are you expecting to receive a refund for your 2020 taxes? If so, the big question becomes: Do you get your tax return early if you file early?
And the long answer is: According to the IRS, you’ll most likely receive money owed within 21 days. So the sooner you file your tax return, the more likely you’ll get your refund faster. And as there was a big-time delay in refunds being sent for 2019 federal taxes — and some state taxes — filing early will help you get in front of the line, says Dolan.
“Getting your tax return filed early gives you a better chance of collecting your refund quickly,” he says, “which means you’re able to use that cash to tackle other financial goals.”
Pro tip: To get the refund in your bank account sooner, sign up for IRS’s Direct Deposit. You can even divvy up your dough so it goes into three different bank accounts.
You could receive money back in the form of an Earned Income Credit
If you earned under a certain amount in 2020, then you will most likely receive what’s called an Earned Income Tax Credit (EITC), explains Tai Stewart, an enrolled agent and founder of the Houston-based Saidia Financial Solutions.
Who exactly qualifies? It’s a credit to help working folks who earn under a certain amount. In 2020, if you’re single, don’t have kids, and made $15,820 or less, then you could qualify for this credit. If you’re married, or filing jointly, that income cap gets bumped up to $21,710. That cap gets bumped up if you have kids.
The sweet part about the EIC? Even if you don’t owe any taxes (you still need to file a return, mind you), you could receive a refund from the EIC. If you file a return and do owe taxes, it could lower the amount you owe. So it’s a win either way.
Bottom line: In order to get a refund, you’ll need to file those taxes. And the sooner you do, the more likely that money will drop in the bank.
You’ll be ready in case there’s a second stimulus check
If there is any government assistance in 2021, such as an economic stimulus check, extended unemployment benefits, and so forth – then by filling your tax returns as early as possible, you can rest easy knowing the government has your most recent info on file. That way, they can issue a stimulus payment should you be qualified, explains Dolan.
If you can recall, the amount you’ll receive in the form of a stimulus check boils down to the adjusted gross income (AGI) of your federal tax return. By filing early, you’ll have reported your earnings and have your tax situation squared away, so there’ll potentially be less snags should a stimulus check in the new year happen.
The government also sends checks to the address you have on your last return. If you have direct deposit for your refunds set up, that money will be sent to the bank account that’s currently linked. If your older returns are outdated, filing early will make sure your information is up to date, and that check will get safely to your hands.
You’ll have more time to save if you do owe Uncle Sam
Should you owe back taxes, filing taxes early can give you more time to save.
Remember: Even if you file an extension — which could lead to tax penalties and late fees down the line — you’re still on the hook for paying your taxes by the April 15th deadline.
If you file in say, late January, and find out you owe taxes – you have about three months to squirrel away some cash to pay Uncle Sam. But if you wait until, say the beginning of April, you’ll only have a few weeks to come up with that money.
In that case, you might have to get on a payment plan, or get hit with paying interest or fees for paying past the due date. As you can see, the earlier you file, time is on your side.
How early can you file your taxes?
While the IRS hasn’t formally announced when it will be accepting returns, it will most likely be sometime in January.
But no matter when the official date is, it can’t hurt to get a head start on prepping your returns. Just make sure that you’ve received all the tax documents you need first. Most folks can expect to collect everything by the end of January or in early February, says Dolan.
When it comes to filing tax returns, the early bird gets a refund sooner, and can rest easy when April 15th rolls around. Godspeed!