Some folks are procrastinators. They wait until the last minute to do everything from getting up in the morning to finishing work assignments to cleaning up the garage. But even those with no history of laziness can find working on taxes to be such a traumatic experience that it instills lethargy in even the brightest and most efficient worker bee.
So if you are looking for a good reason - or a good kick in the posterior – to get going on this year’s tax return, consider the following:
Quick Turnaround. Your tax pro is still in pre-manic-panic mode. Admittedly, tax professionals nationwide are geared up and have probably been going at it for a solid month now, but it’s still early enough in the season that they are not beyond stressed. This means they will have the time and energy and sharpness to speak with you about your tax matters, accurately and completely prepare your tax return, and take the time to seek out additional deductions or methods to minimize your tax liability. Plus the turnaround time is probably considerably shorter than it will be a month from now. If you wait until the end of March or beginning of April when his or her eyes are glazed and they are verging on a nervous breakdown, you may not receive the same benefits.
Accuracy. It’s not completely up to your tax pro to ensure accuracy. You are the person most aware to your financial life. By getting your data together early on, you can take the time to review your tax return to ensure completeness and accuracy. Stan Veliotis, Associate Professor at Fordham University, Gabelli School of Business states, “The sooner you start preparing it, the sooner you can identify needed information. You can avoid errors by double checking the return before filing.”
Last Minute Tax Planning. Wouldn’t you rather know now how much you will owe the IRS and the state versus waiting until April 15? What if the bill is huge? What if you thought you were getting a refund but instead you owe? If you have already prepared the return, you give yourself more than a month to save up, get a loan, or make last minute changes that will bring that number down. Veliotis says, “The sooner you start preparing it, the sooner you can figure out if you want to take actions by April 15, 2016 such as fund an IRA for 2015.”
2016 Estimated Tax Payments. If you are subject to making estimated tax payments, those payments for 2016 are based on your 2015 liability. Your first installment for 2016 is due on April 15, 2016. Preparing the return now gives you the opportunity to save for not just what remains to be paid for 2015, but to save for that first 2016 installment and make that payment in a timely manner.
Returns Needed for Other Purposes. If you have kids in college and need to provide tax returns to the college for financial aid purposes, you should get a head start. Colleges usually want that information in February. Or if you plan to purchase or refinance a home or need a loan for other purposes, the lender will want a copy of your income tax return. A loan could be held up if the return is not ready.
Prevention of Penalties. Some procrastinators become nonfilers. Next thing you know years have gone by and taxes have not been filed or paid. Once you slip into this category, you can become scared and anxious. Plus it becomes very expensive. There is “failure to file” penalty as well as “failure to pay” penalty and interest to pay. Even if you have filed an extension, if you did not pay the tax that was due with the extension form, you will be subject to a penalty of 5% per month (up to 5 months) of unpaid taxes. There is no extension of time to pay, only an extension of time to file. And of course, the Catch 22 is that you don’t know how much you will owe unless you prepare the return. So if you prepare the return, you might as well file it rather than apply for an extension. According to Veliotis, “If enough time goes by without having filed you could be subject to possible criminal charges.”
Lose your Refund. Early in the tax season, returns are quickly processed and refunds fly from the IRS coffers. But as the months progress, it takes the IRS longer to process and provide refunds. So it takes longer to get your money back. But the worst case scenario applies to procrastinators who become nonfilers because they face the statute of limitations. Taxpayers have until the later of three years from the date of the original deadline of the tax return (including extensions) or two years from the date the tax was actually paid to claim a refund of overpaid taxes from the IRS. For example, your 2015 tax return is due on April 18th, 2016. Add three years to this filing deadline, and you have until April 18th, 2019, to file your 2015 tax return and still get a tax refund. If you file your 2015 return after April 18th, 2019, then your refund expires. It goes away forever because the statute of limitations for claiming a refund has tolled. And let’s say you owe other taxes from a prior or subsequent year; you cannot apply that expired refund to the remaining tax debt.