According to the IRS, the 2013 tax filing season began on January 30. Turn on the TV and I see ads saying I should be the first in line to file my taxes and get my refund. As I wrote in "First Person: I Hate Income Tax Refunds", since I seldom plan for a refund, I generally ignore these ads and file my income taxes only after I have done a thorough job of putting my tax related paperwork together. Here are some of the reasons that have led me to believe that haste makes waste especially when filing my income taxes early in the tax season.
Revised W-2 form
The fiscal cliff deal restored commuter tax breaks for 2012 and 2013 to the prior higher levels. According to Forbes magazine, this means $550 or more in tax savings for commuter expenses per employee, retroactive for 2012. My husband's employer recently stated that they would revise their W-2 forms, which would therefore be delayed. Those who have already received W-2s and filed their income tax returns, but expect a revised W-2, would now need to amend their tax returns.
Mistakes in tax forms receivedI have received amended and corrected forms for dividends (1099-DIV), interest (1099-INT), state tax refunds (1099-G), IRA distributions (1099-R)and capital gains and losses (1099-B). Many of these arrived in late March or April. Filing taxes early means that I need to file an amendment if any information in any form changes, otherwise I could risk an audit, interest on taxes and penalty.
Easier to gather pertinent informationBy late February, credit card companies upload PDFs of annual expenses making it easier to spot deductions or expenses that I may have otherwise missed. Brokers often also upload trade and cost basis information in CSV or Excel format after February, whereas early tax filers have to manually enter the information, which takes effort and can result in costly mistakes, as the IRS does match information 1099-B to those reported in the tax filing.
Missed expenses, deductions or other forms
It is easy to miss a tax form, such as the one for education credits (Form 8863), which is expected to be available in mid-February, or a 1099 miscellaneous income form for taxable miles (which Citibank mailed to unsuspecting customers in 2012). In addition, certain medical expenses such as hospital bills that are due after insurance has paid in part, are notoriously late. Expenses such as medical and charitable expenses can help lower taxes so it is important to include them all when filing tax returns.
Extensions are availableIRS allows individual taxpayers as well as businesses to file for a six-month automatic extension of time to file their tax returns. Of course, the IRS expects taxpayers to pay for the taxes that are likely due before April 15 to avoid penalties. For example, in 2012, presidential candidate (and notorious tax planner) Mitt Romney filed for an extension on his tax return, but made payments in excess of what was due. I am not a tax professional or have a team of tax planners at my disposal, but I try my best to file my tax returns before the April deadline. However, in my experience when I am not able to, it is far easier to file an extension and pay an estimated tax due rather than filing an amendment down the road.
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- income taxes