Please ensure Javascript is enabled for purposes of website accessibility

67% of Americans Plan to Make This Smart Tax Move

By Maurie Backman - Jan 25, 2020 at 1:18PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Here's why you should do the same.

Though 2019 tax returns aren't due until April 15 this year, the IRS recently announced that it will begin accepting returns on Jan. 27. And if you have your paperwork in order, it pays to file your taxes at that point, or shortly thereafter. In fact, 67% of Americans intend to file their taxes in January or February, according to a recent FinanceBuzz survey. And that's a smart move you should consider for a number of reasons.

1. You'll get your refund sooner

The sooner you submit your tax return, the sooner you can anticipate your refund hitting your bank account. The IRS typically issues refunds for electronically filed returns within three weeks. For paper returns, the turnaround is about twice as long. But either way, having that refund sooner could save you serious money in the event you're currently sitting on debt (which is the case for a large number of Americans coming off the holiday season).

Person holding pen typing on laptop while using calculator.

IMAGE SOURCE: GETTY IMAGES.

Even if you're not dependent on your refund to pay off a credit card balance or tackle a specific bill, the sooner that money is in your savings account, the sooner you can start earning interest on it. And if you put that money into a retirement savings plan, you can put it to work for you right away by investing it.

2. You'll have time to come up with a plan if you owe money

Though most tax filers receive a refund each year, you may land in a scenario where you owe the IRS money -- and the sooner you're made aware of it, the sooner you can scramble to come up with the cash to pay your tax debt.

Imagine you file your taxes a few days before they're due and realize you owe the IRS $1,000. You may not have that money sitting in savings, in which case you'll risk penalties for paying your tax bill late. On the other hand, if you discover in early February that you owe that $1,000, you'll have two and a half months to cut back on spending, pick up a few extra shifts at work, ramp up your side hustle, or do whatever you need to do to free up that cash.

Remember, you don't have to pay your tax bill the day you file your return, so if you submit yours in February, you still have until April 15 to come up with that IRS payment. Penalties on unpaid taxes don't apply until after April 15.

3. You'll potentially avoid fraud

If your personal information is hacked, one thing a criminal can do with it is file a tax return in your name and divert your refund to his or her bank account. Then, when you go to file your legitimate return, the IRS will likely reject yours, since it will already have a return with your Social Security number on file. The benefit of filing your taxes early is that you may beat criminals to the punch in this regard. And if your tax return is the one that gets into the IRS's system first, you won't have to go through the motions of proving your identity if someone tries to file a fraudulent one in your name afterward.

Filing your taxes early is a great way to get one potentially unpleasant task over with. If you have all of the documentation you need to complete your return, you might as well carve out the time to check it off your list.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.