Reasons to Start your Taxes Early: From a Financial Advisor

As tax season rolls around, inboxes and mailboxes fill with important tax forms. Whether you expect a refund or a tax bill, starting your 2024 return early can help. It can make the process easier, reduce stress, and even protect you from identity theft.

The IRS estimates that the average taxpayer spends about 13 hours completing their return. Even though it may not be the most exciting task, thinking about the financial benefits can help. A big refund can make it feel more worthwhile. In fact, two-thirds of filers received a refund last year, with the average amount reaching $3,004.

Key Tax Deadlines

For most taxpayers, the federal filing deadline for 2024 income taxes is April 15, 2025. If you need more time, you can ask for an extension.

An extension lets you file your return by October 15, 2025. However, you still need to pay any taxes owed by the April deadline. If you live in an area affected by a federally declared disaster, you may have a different deadline, so check with the IRS for updates.

Why Filing Early Is a Smart Move

1. Protect Yourself from Identity Theft

Tax-related identity theft occurs when a fraudster files a return in your name to claim a refund before you do. By submitting your legitimate return early, you reduce the chances of someone else fraudulently using your information.

If you suspect your identity has been compromised, you should still file your return and pay any taxes due. You may need to submit a paper return along with IRS Form 14039, the Identity Theft Affidavit. Also, remember that the IRS will never contact you via phone or email to request personal information—avoid scams by only responding to official IRS notices.

2. Catch and Correct Mistakes Early

Waiting until the last minute to file can increase the chances of errors. If you haven’t received tax documents from an employer, financial institution, or charity, check if digital copies are available. Filing early allows time to correct mistakes and ensure you claim all eligible deductions and credits.

Common tax errors include:

●       Math miscalculations

●       Forgetting to report income

●       Overlooking eligible credits

●       Failing to account for investment losses, which can offset gains

If you have investment losses, Form 1099-B from your brokerage firm will summarize your net gains and losses. Up to $3,000 of net losses ($1,500 if married filing separately) can be deducted from ordinary income, with additional losses carried forward to future years.

3. Plan Ahead for 2025

Tax season isn’t just about closing out the previous year—it’s also an opportunity to optimize your financial plan for the future. Filing early gives you time to:

●       Adjust tax withholdings on your paycheck

●       Determine eligibility for contributions to IRAs, Roth IRAs, and Health Savings Accounts (HSAs)

●       Maximize retirement contributions before the tax deadline

For the 2024 tax year, you can contribute to an IRA or HSA until the April 2025 filing deadline. Here are the limits:

●       Traditional & Roth IRAs: Up to $7,000 (or $8,000 if 50+ years old)

●       HSAs: Up to $4,150 for individuals and $8,300 for families, plus an additional $1,000 catch-up contribution for those 55+

In 2025, the HSA limits increase slightly:

●       $4,300 for individuals

●       $8,550 for families

For self-employed individuals and small business owners:

SEP IRA contributions for 2024 are capped at 25% of compensation or $69,000, whichever is lower.

In 2025, the limit rises to $70,000.

If you haven’t yet opened a SEP IRA, you may still be able to do so before your business tax filing deadline. Consider consulting a tax professional to assess the impact on your overall financial strategy.

4. Avoid Unexpected Tax Bills

The last thing anyone wants is a surprise tax bill. If you’re self-employed, earn freelance income, or work in the gig economy, you’re likely responsible for quarterly estimated tax payments. If you haven’t made these payments, you could face penalties and may need extra time to gather funds for any taxes owed.

By preparing your return early, you can estimate your tax liability and make necessary adjustments—such as increasing withholdings or setting aside funds to cover taxes.

5. Get It Over With and Move On

Taxes are one of the least enjoyable financial tasks of the year, but tackling them early means you can cross them off your list and focus on other financial goals.

To make future tax seasons easier:

●      Keep digital copies of receipts and tax documents organized in a dedicated folder.

●      Use tax preparation software that integrates with financial accounts.

●      Set reminders for key tax deadlines to avoid last-minute scrambling.

Final Thoughts

The sooner you start your tax filing process, the more time you’ll have to fix errors, maximize deductions, and avoid unnecessary stress. Even if you don’t expect a refund, taking proactive steps now can help you minimize taxes owed, protect yourself from fraud, and set yourself up for a smoother financial year ahead.

Sources:

https://www.fidelity.com/learning-center/personal-finance/getting-started-on-tax-returns

Disclosure:

 This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

 Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.