Do you rush to file your tax returns as soon as possible? If you get all your documentation, this might even be as soon as the end of January. But is filing early a good idea? Let’s review the pros and cons to file your taxes early.
Then you can decide what’s right for your unique situation.
First of all digital nomads are just like any other taxpayer in that they still need to file a return. However, if you’re out of the USA during tax time, you are granted an automatic extension until June 15 to file your return.
Yup. You read that right. As a digital nomad outside the USA, the IRS grants you a little leeway.
Let’s review the pros and cons to file your taxes early
First of all. Not every situation supports the idea of filing early. In fact, filing for an extension and putting it off as long as possible actually makes sense for some filers.
Let’s look at the advantages and disadvantages to file your taxes early.
Hint: there are more advantages than disadvantages.
Receive your refund sooner.
If you’re owed a tax refund, you might as well get your money back as soon as you can. If you’re going to mail your return (10% still use the mail) or efile, the IRS is less busy in February than in April, so the processing time should be quicker.
Be free of the mental clutter.
It has to get done one way or the other. It makes sense to get it over with and free yourself from it hanging over your head. Life is easier if you don’t procrastinate. Just do it.
The post office is less crowded.
Remember, 10% of the adult US population is a lot of people and most of them will be trying to use the post office at roughly the same time. A lot of people don’t want to electronically file for a variety of reasons so avoid the crowds and file your taxes early.
You won’t be late.
So many taxpayers do things at the last minute. But this is risky. What if you find out that you’re missing some key piece of information? What if you get sick? There are too many variables in life to put off something like waiting to file your taxes.
If you don’t delay, you won’t be late. Filing on time means avoiding late penalties. Win-win if you ask me.
You’ll be more accurate.
If you’re not rushed for time, you’ll be more likely to avoid errors. You’ll be able to ensure that you have everything you need and that it’s done correctly.
If you need an extra document, you’ll have time to get a copy.
And now for the reasons not to file your taxes early…
Don’t pay early.
If you owe the IRS money, you’ll make more money in interest if you keep your money as long as possible. I’m here to tell you this isn’t really a disadvantage.
You can file early and set a direct withdrawal for a later date (ie. in April) so you keep your money in an interest-bearing account longer.
You could also mail a check in early April if that’s your preferred payment method. If you do mail a check, make sure to send it trackable so you have proof it was sent on time!
Problem solved for this one.
You might end up having to file a corrected return later.
This one is true. It’s not uncommon for employers, banks, and investment firms to come back a month after sending your documentation and say, “Oops, we made a mistake.” Then they issue a corrected tax form and you go “oh no. I already filed.”
Taking a little time to file your return will help to ensure that you don’t have to do it more than once. If you have investments and know that some of these forms come a little later, then it’s best to wait a little bit before you file.
Greater chance of being audited.
It is commonly believed that early filers are more likely to be audited. The rationale being that if the vast majority of the population is filing at the last moment, then there are so many tax returns that the odds of being selected are minimal.
I disagree with this thought because the audits are 1. a separate department and 2. usually for prior years. The computers flag items filed for a person to review and then by the time the auditor gets their hands on things, it’s typically the following tax year.
In this case, filing early won’t help you avoid an audit. Sorry to burst that theory.
Consider the above factors when deciding to file your tax return. If you’re in a situation that makes it more likely that you’ll be audited and you don’t need your refund or copies of your return right away, it can be wise to wait.
On the other hand, if your return is simple, you’re due a refund, and you need the refund now, there’s no time like the present to file your return. Assess your situation and make the smart choice for your circumstances.