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- Filing your taxes early means you have more time to make last-minute retirement account contributions.
- If you expect to owe money, filing early gives you plenty of time to figure out how you plan to pay.
- Finishing your taxes early also gives you time to plan ahead for next year.
Filing taxes isn’t high on many people’s to-do lists. But as a financial planner, I always recommend getting them done as early as possible.
I personally file my taxes in late January or early February each year. And throughout my career, I’ve found many benefits to submitting earlier rather than putting it off until April 15.
Whether you’re an entrepreneur like me, a W-2 employee, retired, or have complex investments, here are the most significant reasons jumping on taxes immediately pays off.
1. It can help you maximize deductions
Running your own business can bring many tax advantages through write-offs and deductions. As a freelancer, I can deduct everything from equipment, software, travel, continuing education, insurance, and so much more.
But I often can’t fully leverage these perks if I wait until April to tally everything up. Filing as early as possible provides enough time to comb through the possible write-offs and take advantage of what I’m entitled to. Plus, it gives me time to work with my accountant to maximize my tax strategy.
It also allows me to make any last-minute retirement plan contributions if I’m below the threshold for maxing out retirement accounts, like a SEP IRA or Solo 401(k). For a SEP IRA, you have until April 15, following your contribution year, to make a deposit. So, for your 2023 taxes, you can contribute to a SEP IRA until April 15, 2024.
This gives me the ability to maximize my deduction potential.
2. You can plan better if you owe money
Because I freelance, I almost always end up owing a chunk of change come tax time. Personally, I feel like it’s just the nature of quarterly estimated payments.
By filing early and understanding as soon as possible how much I owe, I have time to properly budget and set up a payment plan well before the deadline. I don’t need to scramble to cover what I owe to Uncle Sam.
Plus, if I want to contest my tax liability, having a couple of extra months gives me more time to make an informed appeal.
3. You’ll get your refund earlier
For those expecting refunds, submitting as soon as possible means getting that money back faster. The IRS usually issues refunds within 21 calendar days of receiving your return.
Those who complete their taxes in late January may see deposits hit their bank account by mid-February. That’s a good two to three months faster than waiting until the last minute.
If you’re a full-time employee, your company will distribute your W-2 form by January 31. That gives you a couple of months to file your taxes and get your return ASAP — or make a plan to pay your bill.
While you won’t earn interest on the refund itself, having access to a sudden chunk of change earlier gives you more options. You could use the money to pay down high-interest debts, make an extra mortgage payment, fund an IRA before the deadline, or put it into a CD. Take your pick.
4. You can better plan for next year’s taxes
Getting an early look at my past year’s tax return gives me more time to start thinking about my tax strategy for the coming year.
While this sounds a little premature, taking just a bit of time to think ahead can be helpful.
Seeing what deductions I missed or where my income could have been offset better can guide my decisions for things like:
Quarterly estimated payments
Retirement account contributions
Use of tax-advantaged savings tools like HSAs or FSAs
I have a built-in starting point to reduce next year’s tax bill.
Getting a jump start on taxes simply removes any pressure that comes with filing. For freelancers like myself, it ensures that I maximize my deductions — so I hang on to as much hard-earned income as legally possible.
Even if you’re not a freelancer, filing early can ensure you get your return early or have more time to pay your bill. Plus, evaluating my latest tax return early gives me a game plan for next year’s liability.
That’s why everyone should tackle their taxes as soon as possible. Though it takes some proactive steps, you’ll breathe easier and set yourself up better for next tax season.