Why you should file taxes as early as possible

Wealth


If you’re the type of eager beaver who likes to get your taxes done early every year, you’ll have to wait a bit longer than usual to file your 2020 return — until well after Groundhog Day, in fact. The IRS recently announced that it won’t begin accepting returns until February 12, which is 16 days later than tax season began last year.

The agency’s reasoning: Moving the date back gives the organization time to “do additional programming and testing of IRS systems” following the December tax law changes that brought a second round of stimulus payments.

More from Grow:
Suze Orman: Don’t make 4 ‘foolish’ money mistakes in 2021
How to get wealth to ‘chase you,’ according to Deepak Chopra
This map shows the average credit score in every U.S. state

The work, officials say, should help to ensure that IRS systems run smoothly. The organization expects 9 out of 10 taxpayers getting refunds to receive payment within 21 days of filing, if they file electronically and set up direct deposit.

The delay doesn’t mean you can’t get a head start. You can still prepare your return now using tax software, a professional preparer, or through the IRS Free File program (available to taxpayers whose adjusted gross income for 2020 was $72,000 or less). You just won’t be able to actually file until Valentine’s Day weekend.

And experts say getting in your taxes as early as you can is a smart move this year.

Why it pays to file early if you expect a refund

Video by Stephen Parkhurst

The other advantage of filing early if you expect a refund: It helps ensure that you claim your money before fraudsters have a chance to claim it in your name. “Fraud is a prime reason to file early,” says Mark Prendergast, director of tax strategies at Inspired Financial in Huntington Beach, California. “If a fraudster out there files something under your name, you could have hell to pay with the IRS.”

Common reasons you may want or have to wait to file

Even if your refund money is already burning a hole in your pocket, there are several reasons you may want or have to wait beyond the start of tax season to file your return. If you’re missing documents, or if the documents you have could change after you file, you could be forced to amend your tax return later. That’s an outcome to avoid if you can: “Having to file an amended tax return is a time-consuming and potentially costly process,” says Levine.

A common fly in the ointment: 1099-DIV forms issued by brokerages to indicate information such as income from dividends and foreign taxes withheld. “Brokerages are reporting what the mutual fund companies told them the numbers are,” says Prendergast. “But mutual fund companies are going crazy trying to get their accounting right. They often send revised numbers, which forces the brokerage to reissue their statement.”

If you hold mutual funds in a taxable account that provides significant dividend income or exposure to foreign stocks, Prendergast says, you might want to wait until mid-March to file.

And if you picked up income from a side hustle or freelance work this year, you may also be forced to wait, he says. The company that paid you for this kind of work is required to issue you a 1099-NEC form by January 31 — the same deadline for firms to issue W-2s. Unfortunately, “that doesn’t always happen,” says Prendergast.

“These companies are much more worried about complying with W-2 issuance, and they don’t have to file the payments until February 28,” he says. “They might get them done sometime in February, which means you could receive your 1099 in March.”

Regardless, keep in mind that the IRS has not pushed back the deadline to file. This year, it’s once again April 15.

The article “Tax Season Starts February 12: Why You Should File as Early as You Can” originally published on Grow+Acorns.



Source link

Products You May Like

Articles You May Like

Lowe’s (LOW) earnings Q4 2020 beats estimates
Nuclear power will ‘absolutely’ be politically acceptable
Salesforce (CRM) earnings Q4 2021
DoorDash (DASH) Q4 2020 earnings
Use the 1% marginal gains rule, says performance expert

Leave a Reply

Your email address will not be published. Required fields are marked *