Posted by Abundant Wealth Planning LLC

Why You Should Pay Your Taxes Early

Why You Should Pay Your Taxes Early

In late January of every year, the IRS will start accepting your annual income tax filing. From year to year, the specific date will vary; on January 27, 2020, the IRS began to take filing for 2019 taxes. Over the course of the year, they will take estimated payments for it on what you think you will owe at any time. Even the freelance workers and some business owners are legally obligated to make those payments and somehow few people are doing this. 

There several ways on how you are going to file your taxes: it could be by mail or electronically, individually, or through an accountant. As taxpayers, we have quarterly to get our finances in order and send that 1040 to the federal government and this will be done between January 1 and April 15. 

Many of us won’t do that. Until the last week of filing, they will get their paperwork and wait for roughly one in seven tax filers. And with that, it seems low to us. Half of all households nearly jump the number when you include everyone who waits until April. This means there will be seven million taxpayers who sometimes choose not to file at all and another 13 million taxpayers who sometimes choose to file after the given deadline.

Most of us are chronic procrastinators.

However, when it comes to tax we shouldn’t be.  And here the four reasons why.

Note: This article will apply to local, state, and federal taxes alike while most of the information will discuss specifically the federal income tax.

First: To avoid any problems in getting back the money it’s better for you to get it back early

A refund will be given to most taxpayers. More than most. 111.8 million are qualified for a refund out of 155.8 million tax returns that were filed in 2019. The total average refund was $2,869.

Filing your taxes earlier means getting this money back sooner only if you are a representative taxpayer. Allowing your money to generate value and returns in three months of investing. Three months earlier it could mean paying off debts that would have otherwise racked up on credit card debts and student loans as well and would have cut down the interest.

In the scheme of things, three months may not seem like a vast amount of time but we’re talking about three months every single year.

Now let’s think this way. If you took that money and just simply deposited it in an IRA every year, you would give that money a collective 30 extra months to earn interest over ten years of filing your taxes in January instead of April.

Second: You might owe money and if you want to save, you might need some more time.

By April 15, 2020, about 20% of taxpayers anticipate owing the federal government money. People who have significant investments, business owners, the self-employed, and even high-income individuals are included in this group. Anyone has to pay taxes on that money who makes a significant freelance income.

A lot of us aren’t very good at keeping those books.

If you are employed you have your advantage because your employer will automatically withhold taxes from your income. What makes it advantageous? You will never have a chance to spend your money because that particular money will not enter your wallet. Unlike those contract workers who don't withhold. They are forced to pay every dollar of their taxes directly with an additional 7.65 percent also called the “self-employment tax.”

Every 15th day of April many workers owe the IRS thousands of dollars and it is considered as the upshot. It may not get any less painful to cut the check if you found out about it in February, but it will give you some time to budget and save up just in case you don’t have all the money yet. Now, you can see that it is better to know in advance about a large bill than to know it just a night before it’s due.

Third: By the month of February and March you can easily get help from the IRS

The most underappreciated agencies in the U. S. government is the IRS.

It works with almost all taxpayers who struggle to pay their bill which is the opposite of most public impressions. Structure payment plans are usually automatic, offer generous terms frequently, and even come with grace periods most of the time for people who need a little extra time. The IRS has no problem helping you pay your taxes.

But they’re not as excited as helping you with filing your taxes.

It can be complicated to file your taxes. Only a few Americans understand the tax code and as a result of it the taxpayer’s miss deduction, credits, and even refunds to which they are entitled. But due to budget cuts, the IRS might not care that much in helping people to make sense of any of these issues.

There were several times that the Congressional Republicans cut the IRS budget during the administration of President Barack Obama, with the purpose of blocking the enforcement of the Affordable Care Act’s tax penalties. The IRS could not choose to not enforce them since those penalties were mandated by the law. Instead, it decided to cut back in areas where the agency did have discretion. They can be through adults of high=income taxpayers and customer service.

When it comes to April, expect that the IRS will be incredibly difficult to reach if you have a question about your taxes. An average of 70 minutes to three hours will be the time range for you to wait, even the most basic filing questions will not be answered by the agents. It is much easier to speak to a human being if you have some questions during February and March.

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