The Benefits of Filing Your Tax Return Early: A Guide to Smooth Tax Preparation

By Kenneth Dean, CPA, CFP®, CFA, MST

There are benefits of filing your tax return early. It may not only save you from the last-minute rush but can also provide several advantages. In this article, we will explore the key reasons why we believe it is important to file your tax return early for some filers and provide essential tips to seek a stress-free tax preparation process.

Gathering all the necessary documents

To smoothly sail through the tax return process, it is crucial to have all your documents in order. Here are some important documents you should gather:

• W-2 forms: These provide details about your employment income.
• 1099 forms: These include various types of income such as self-employment income, dividend income, interest income, and more.
• 1098 forms: These reflect any mortgage interest paid during the year.
• Social Security Benefit Statement: Provides information about your social security benefits.
• Medical bills and receipts: These can be used for potential deductions.
• Real estate tax documents: Keep records of any real estate taxes paid.
• Federal and state estimated tax payment records: These documents are essential for accurate reporting.

Planning opportunities

By filing your tax return early, you unlock several potential planning opportunities. Consider the following tips:

Time to pay any balance due: Filing early gives you ample time to review your tax liability and make any necessary payments before the April 15th, 2024 deadline for 2023.

IRA and Roth IRA contributions: If you are eligible, you may still have the opportunity to fund an IRA or Roth IRA until April 15th and potentially deduct contributions.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

SEP-IRA for self-employed individuals: If you have net self-employed income, you may want to consider deducting and funding a SEP-IRA to potentially reduce your taxable income while saving for retirement.

Health Savings Plan (HSA): Explore the possibility of funding and deducting contributions to an HSA, provided you are eligible. This can help you save on healthcare expenses.

Choosing the right tax preparer

To better position yourself for a smooth tax filing experience, we believe it is crucial to work with the right tax preparer. Here are some important factors to consider:

Consider a CPA or Enrolled Agent (EA): Certified Public Accountants (CPAs) and Enrolled Agents (EAs) are knowledgeable professionals who specialize in tax matters and seek to provide guidance throughout the process.

We believe you should avoid preparers who charge based on a percentage of the refund being reported. Instead, find a preparer who exhibits appropriate knowledge of your situation’s complexity and obtain an estimate of costs up front. You can find a list of these individuals here: https://irs.treasury.gov/rpo/rpo.jsf .

Seek recommendations and read reviews: Ask friends, family, or colleagues for recommendations and read online reviews to help you find a reputable tax preparer.

We understand that for some individuals and depending on complexity it may not be feasible to file early as you await tax forms; however, it may still be beneficial to meet with or consult your tax professional to review anticipated tax form arrival dates and the overall filing schedule ahead of time. By holding these discussions early in the tax preparation cycle, you can help reduce confusion and allow enough time to plan tax filing strategies.

By filing your tax return early, you can eliminate the stress of a last-minute rush and take advantage of various planning opportunities. Gathering all the necessary documents, understanding planning tips, and choosing a reliable tax preparer are key steps in preparing for the tax filing process. Take charge of your tax preparation early and experience the confidence that comes with being well-prepared.

DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Winthrop Wealth, a Registered Investment Advisor and separate entity from LPL Financial.