Saturday, March 30, 2013

Why You Need to Avoid Last Minute Tax Preparation

Statistics show that at least 10% of taxpayers procrastinate to prepare tax returns until the last minute. There are many disadvantages of waiting until the last minute to file your returns. Some of these drawbacks are explained below:
  • Documentation - When you wait until the last minute, you can discover that you are missing a necessary tax preparation document and the process of searching or getting a replacement may get you late.

  • Professionals Less Available - Last minute filers may not be able to get a tax preparer, as most preparers are booked as the tax deadline nears. The available tax preparers may also charge a premium for taxpayers who seek their services at the last minute.

  • Easily Get Late - Taxpayers who wait until the last minute easily miss out on the deadline and end up filing last due to time constrains. Late filing attracts penalties and if you owe taxes and are late to make payment, you will also need to pay interest.

  • Manual Filing - Most late filers opt to file manually as this is usually the more familiar way of filing and last minute pressure pushes many to dash for paper filing as opposed to using electronic filing. This means that they miss out on the advantages of filing electronically. These advantages include faster refunds, less postage expenses, and if you had an annual income of less than $57,000, you can prepare your taxes free of charge on the Free File system available for electronic filers.

  • Errors - Due to the pressure of last minute filing, filers will easily make errors as they prepare the returns. This may require the taxpayer to file an amendment return to correct the error. If such errors are not amended, the taxpayer will be at risk of an audit and if the error leads to an understatement of taxes, the taxpayer may be liable to non-wilful tax fraud penalties and accumulated interest from the unpaid taxes.

  • Miss Out on Reliefs - Due to the last minute rush, a taxpayer can easily miss out on tax deductions and tax credits that he or she may qualify for. This means that he or she gets to pay more taxes than would have otherwise been due. However, if you file in good time, you can capitalize on all tax opportunities available and therefore, pay the least amount of tax.

  • Tax Bill - When you file at the last minute and discover that you owe taxes and had not planned for the same, you may end up being late to make payment. Late payment of taxes will mean paying extra for penalties and interest. However, if you prepare your taxes early, it will give you time to raise funds for any taxes that will be due for payment.

  • Choose Not to File - If you keep postponing tax preparations until the last minute, you can easily find yourself under pressure and choosing not to file at all. Not filing a tax return may have both civil and criminal consequences and it gives the IRS unlimited statute of limitations to audit your unfiled returns.

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