Taxpayers are no longer “walking in a winter limboland” where tax extenders are concerned, a major reason tax filing season can begin unimpeded, which further means may be to your advantage to file early.
Our Dec. 3, blog post warned that tax filing season might be delayed because Congress hadn’t passed tax extending legislation for a lengthy list of tax breaks for individuals and businesses. However, H.R. 5771 – with the lofty title of “Tax Increase Prevention Act of 2014 - extends the extenders through the 2014 tax year.
On Jan. 20, the IRS started accepting e-filed returns and paper tax returns will “begin processing at the same time,” the IRS says.
Filing early has several advantages you should consider when you start gathering information for your tax preparer:
- Identify theft: filing of phony tax returns using stolen identities has mushroomed into a multi-billion dollar criminal enterprise. The sooner you file your return, the less chance there is that someone else can file a return using your name – and the faster it can be identified if identity theft occurs.
- You may receive your refund earlier (if you know you’re due a refund). You’re at least in line earlier, which is significant. Most people delay filing because of the effort or complexity it requires or the thought is equivalent to undergoing an annual root canal. However, if you know you’ll receive a refund, filing early means the government will have less time to hold on to money that’s actually yours.
- Loans and other financial matters: Whether you’re a business or an individual filer, there may be financial transactions for which you’ll need to produce your latest tax return. If your latest return is sitting on your desk, it pushes back the transaction completion date.
- The Affordable Care Act (Obamacare): As 2014 is the first year to report health care coverage (or lack of it) on income tax returns, the probability is high of the IRS being more consumed with dealing with the administrative and analytical challenges relating to ACA, especially as it gets deeper into tax season and receives an ever-increasing number of tax returns as the April 15 deadline approaches. Find out more about Obamacare’s tax reporting requirements here.
Another recommendation we have that is helpful for not only you, but also for your preparer, is to have your information to them as early as possible. If you're only waiting on one or two items, you can always go ahead and hand over what you currently have. This allows your preparer to get started and then once the last couple pieces of information are received, that can be plugged into your almost completed return and can be filed right away.
The tax extender issue truly was the lynchpin to beginning tax filing season. The list is long and includes more than 50 tax breaks or investment incentives for individuals, businesses, energy-related activities, and pension plans.
The most effective way to ensure you are fully aware of the impact to you or your business of the tax extenders and what early filing means generally is to talk to a tax professional. With the passage of the tax extender legislation tax preparers are breathing easier now, and can concentrate on presenting you with your best options.
Or you can wait, but it’s not your best option.