Tell Clients to File Their Taxes Early
IMGCAP(1)]The Internal Revenue Service announced that it anticipates opening the 2015 filing season as scheduled in January.
The IRS will begin accepting tax returns electronically on January 20. Paper returns will begin processing at the same time.
While that gives taxpayers and preparers nearly three months to complete their returns (not counting extensions), there are numerous reasons for preparers to encourage their clients to file early, according to Charles McCabe, president of Peoples Income Tax and The Income Tax School. He suggests that preparers remind their clients of these reasons so that their own work during filing season will be more evenly balanced between early filers and last minute filers.
With ID theft and the filing of fraudulent return at an all-time high, perhaps most important is the fact that filing early minimizes the risk of identity theft. “By filing early, you will provide less time for someone to file a false return to obtain a refund using your identity,” said McCabe.
“If the IRS owes you money, you should get it as soon as possible,” said McCabe. “Moreover, if you owe the IRS, you have the option of filing early and waiting until the April 15 deadline to pay what you owe. Knowing what you will owe will give you more time to budget for that expense. And you will also have the option of arranging an installment payment plan by April 15.”
“Taxpayers that file early not only won’t have to wait for an appointment with their preparer, but the preparer will be able to spend more time with them earlier in the season,” McCabe observed.
And having an up-to-date tax return will facilitate financing, he noted. “Banks and other lenders, especially small business lenders, often require current tax returns to be submitted with loan applications,” he said. “And if a taxpayer has children applying for college financial aid, tax return information will likely be required.”
If taxpayers receive their refund early, they can use the refund to fund an IRA, which will lower their taxes. “Taxpayers can increase their tax refund by deducting a contribution made to a traditional IRA,” said McCabe.
“The IRA contribution does not have to be funded until the tax filing deadline,” he added. “Assuming a couple’s federal and state marginal tax rate is typically over 30 percent—25 percent federal and 5 plus percent state—every $1,000 invested in an IRA would increase their refund by $300, or $250 if their state has no income tax.”
Therefore, if their state has an income tax, it would cost them only $700 or less for every $1,000 they save for retirement, McCabe noted: “By filing early, they will be able to use their enhanced refund to fund the IRA contribution on or before April 15.”