I was told that there are only two things that are certain in life – death and taxes. On April 15, every working American knows that if he or she is not dead, then he or she owes his or her share of taxes to the government. Filing taxes is not exactly the most fun job out there, but it is something that is better to get over with. I used to file my taxes near the deadline date, but there are reasons to file earlier than later.
If you are anticipating a tax refund, it is better to file your taxes early. It works out to your favor because, the earlier you file the sooner you will receive that tax refund check or bank deposit.
Tax Refunds Are Not Good
Most people are very happy to receive a tax refund, but when you receive a tax refund, it means that you have overpaid your taxes during the year. At the end of the year, when you do your taxes, the total amount of taxes you owed to the IRS is calculated. Regardless of how much you have withheld during the year, the same amount of taxes are owed at the end of the year.
When you receive a tax refund, it is the over-allocated portion of the tax withholding that you receive back. The extra tax withholding amount becomes a tax-free loan to the government, because the IRS does not give you any interest on the money. If you have a large tax refund, it may be better to adjust your tax withholding so that you end up with a smaller tax refund.
For example, suppose that you filed your taxes at the end of the year. The tax you owed to the IRS is $1,000. The total amount of your tax withholding is $1,500. Your tax refund amount would be $500.
$1,500 (Your Total Withholding) – $1,000 (Your Taxes Due) = $500 (Your Tax Refund)
Get Tax Return Out of the Way
Another reason to file tax returns early is to have a peace of mind and avoid the last minute rush. The post offices always have a long line on April 15 or the deadline date (if different), because everyone is scrambling to have their tax returns postmarked with the deadline date. When you file your tax return early, you have the benefit of more time to focus on getting your tax return accurate and complete. Thus, you are not pressure to getting the tax return out the door and can avoid unnecessary mistakes. And it would be a good feeling to know that you are not the one standing on line in the post office looking at the watch and wishing that you had done it earlier.
Filing Taxes – Do It Yourself
When my tax filing was simple and straightforward, I use to file taxes on my own. It was only a few tax documents that I had to account for in the tax return – a W-2 form and a 1099 interest statement from the bank. I would go online, entered all my information and submit my tax return via the internet. And the filing fees for me were cheap, often for free (see below). If you have a simple tax return and have some time on your hands, I think it’s a good idea to file the tax return yourself. You would benefit by saving some money and you will learn more about taxes.
Hired A Tax Accountant
After I have purchased a rental property and become self-employed, my tax return became more complicated, so I hired an accountant to file the tax return. I still do all the bookkeeping, because I need to keep track of my earnings and spending. At the end of the year, I provide my accountant a detailed report of my income and expenses, broken down by different accounts — business, rental property, and personal account. He would complete the return for me, ask me to sign them, and then send them out to the IRS.
The accountant fees vary, depending on the complexity of your tax return. Generally, if you have a business and a rental property, like I do, the fees range from $300 to $800. My accountant charged me $250 for the first year, and had increased it almost every year.
Fee for Filing 2005 Tax Return: $250
Fee for Filing 2006 Tax Return: $300
Fee for Filing 2007 Tax Return: $400
Fee for Filing 2008 Tax Return: $400
The accountant fee seems high but I was told that the cost to file a business tax return is generally in the $500 range. For me, the accountant files the business and personal tax returns. Plus, he has done a good job since I have hired him, so I would continue to let him file my taxes. Also, the service has been excellent. I could call my accountant at any time of the year and ask him tax questions or I can send him an email and usually receive a response within 24 hours. It seems as if the excellent service is worth the price alone.
File Online for Free
If you are planning to do your taxes alone, here are some websites that allow you to file your tax return for free, if you are eligible. Click on the links for more details.
Internal Revenue Service