Taxes are due in less than two months.
The IRS accepts your annual income tax filing starting in late January. The specific date varies from year to year; for 2019 taxes the IRS began to take filings on January 27, 2020. They will take estimated payments on what you think you will owe at any time over the course of the year. (Somehow few people do this, even among the freelance workers and business owners legally obligated to make those payments.)
You can file your taxes by mail or electronically, individually or through an accountant. Between January 1 and April 15, as taxpayers we have more than a third of the year to get our finances in order and send that 1040 to the federal government.
Most of us won’t do that. Roughly one in seven tax filers (more than 20 million households) wait until the last week to get their paperwork in. (Frankly, that seems low to us.) When you include everyone who waits until April, the number jumps to nearly half of all households. Another 13 million people file after the deadline, and seven million taxpayers won’t file at all.
We, the people, are chronic procrastinators.
But when it comes to our taxes we shouldn’t be. Here are four reasons why.
Note – While most of the information in this article will apply to local, state and federal taxes alike, it will specifically discuss the federal income tax.
First: You’ll Probably Get Money Back, So Get It Back Early
Most taxpayers get a refund. More than most. Out of 155.8 million tax returns filed in 2019, 111.8 million qualified for a refund. The average refund was $2,869.
If you are a representative taxpayer, filing your taxes earlier means getting this money back sooner. It means three more months of investing, allowing your money to generate value and returns. Or it could mean paying off debts three months earlier, cutting down interest rates that would have otherwise racked up on credit card debts and student loans.
Three months may not seem like a vast amount of time in the scheme of things, but this is three months every single year.
Think about it this way. Let’s say you took that money and simply deposited it in an IRA every year. (Hopefully a Roth IRA.) Over a decade of filing your taxes in January instead of April, you would give that money a collective 30 extra months to earn interest.
Second: You Might Owe Money, and Even Might Need Time to Save
Even more importantl, you might owe money.
Roughly 20% of taxpayers anticipate owing the federal government money by April 15, 2020. This group includes high-income individuals, people who have significant investments, business owners and the self-employed. Anyone who makes a significant freelance income (such as Uber (UBER) - Get Report/Lyft (LYFT) - Get Report drivers, Airbnb hosts and many journalists) has to pay taxes on that money.
And many of us are very, very bad at keeping those books.
One of the biggest advantages of being employed is that your employer withholds taxes from your income. That money never enters your wallet, so you never have a chance to spend it. Contract workers don’t have withholding. They have to pay every dollar of their taxes directly, along with an additional 7.65 percent known as the “self-employment tax.”
The upshot is that many workers owe the IRS thousands of dollars every April 15. While finding that out in February won’t make it any less painful to cut the check, it will give you extra time to budget and save up just in case you don’t happen to have all of the money. It’s far better to know about a large bill in advance than the night before it’s due.
Third: You Can Get Help From the IRS More Easily in February and March
The IRS is one of the most underappreciated agencies in the U.S. government.
Contrary to most public impression, it works with almost all taxpayers who struggle to pay their bill. Structured payment plans are often automatic, frequently offer generous terms and usually even come with grace periods for people who need a little more time. The IRS is very willing to help you pay your taxes.
It is much less willing to help you file those taxes.
Filing taxes has become a complicated, even Byzantine, process. Not many Americans understand the tax code and, as a result, taxpayers miss deductions, credits and refunds to which they are entitled. Unfortunately, due to budget cuts, the IRS increasingly will not help people make sense of any of these issues.
Congressional Republicans cut the IRS budget several times during the administration of President Barack Obama in an effort to block enforcement of the Affordable Care Act’s tax penalties. Since those penalties were mandated by law, the IRS could not choose not to enforce them. Instead it had to cut back in areas where the agency did have discretion, such as audits of high-income taxpayers and customer service.
If you have a question about your taxes, the IRS becomes incredibly difficult to reach in April. Average wait times range from 70 minutes to three hours, and agents will not answer anything but the most basic filing questions. In February and March, however, it is much easier to speak to a human being if you have questions.
File your taxes before St. Patrick’s Day and you can actually get help doing so.
Fourth: It's Almost Impossible to Get an Accountant in April
You might choose to hire a tax professional. For simple taxes, which means most households claiming the standard deduction, you probably shouldn’t pay to have your taxes done. Intuit (INTU) - Get Report and H&R Block (HRB) - Get Report are required to provide free filing services to anyone with less than $60,000 per year of income.
For everyone else, the paperwork is simple enough that you can save hundreds of dollars with about 30 – 45 minutes’ worth of work.
However, people with complicated taxes might do well to consult a professional. This generally includes anyone who takes individual deductions, taxpayers with significant investments, multi-state or multi-nation residents, business owners and the self-employed. For them spending a couple hundred dollars on an accountant can mean far more in savings.
Those accountants will be incredibly busy come April, though. Filing your taxes early means that you can get in to see someone who can answer your questions and handle your paperwork before the April 1 rush hits. If you’re missing some documents or just want to look at something a little harder, the best time to do it is when everyone else is still hiding from their W-2s.