The Benefits of Filing Early

As we approach the last couple of weeks of tax season, I’m always shocked at the volume of clients (and accountants) who prefer to jam in a full year’s worth of tax work into two weeks. 

Maybe it is just human nature and Parkinson’s Law, which states: “Work expands to fill the time available for its completion.” 

More likely, taxpayers are not aware of the benefits of filing early. 

The Elephant in the Room: Time Value of Money

A common argument against filing taxes early is the time value of money. In other words, taxpayers should hold onto their funds for as long as possible to earn any investment returns (usually safe interest) before handing it over to the government. 

This is completely justified and smart money management! However, most people do not realize that with modern tax software and e-filing, you can finish your tax return as soon as possible and schedule your payment for the due date (this year April 15, 2025).

If you are thinking that taking the 6 month extension will save you money, you would be wrong. Your tax payment is still due on April 15 regardless of whether or not you extend. In fact, if the return is not complete or there are uncertain tax forms coming your way, it would be wise to pay more than you think you’ll owe on the tax due date to avoid unnecessary interest and penalties when you ultimately file. 

The last thing to discuss on this topic is IRS relief for natural disasters, which usually takes the form of an automatic extended due date for both filing and payment. 

Of course, if your records were destroyed, lost, or you otherwise faced hardship from the natural disaster, you will need to communicate with your accountant on a timeline that you think is reasonable to get your information together. 

However, if you are in the disaster zone but otherwise have no changes to your day-to-day, you should still get your tax return done as soon as possible and schedule your payment for the extended due date.

Contribution Deadlines

One of the biggest advantages to filing early is that you have more time to consider options for your money that contribute to your long-term wealth building instead of paying taxes. 

For example, you can contribute to an IRA (Individual Retirement Account) or HSA (Health Savings Account) up until April 15 (or the tax filing deadline). While these are not dollar for dollar reductions in your tax liability, they may be attractive options for building long-term wealth in tax advantaged accounts with the added benefit of getting a tax deduction against your income today. 

If you are unsure about whether contributing to one of these accounts would benefit you, finishing your tax return will give you a clear picture of your taxable income, taxes owed, and scenario analysis of how much contributions would save you in taxes. 

For example, a taxpayer owes $2,000 in taxes after all of their withholdings and estimated payments, and they are in the 30% tax bracket. 

They could decide to fund a HSA or IRA. In this example, let’s say they can afford to put $3,000 into an HSA. They would then get a $3,000 deduction to their income, which at a 30% tax rate would save them $900 in taxes. 

While they will need to come up with a total of $4,100 in total funds ($1,100 for taxes and $3,000 to fund the HSA), they get to keep $900 more than if they had decided not to fund the HSA.

HSAs & IRAs

How a Health Savings Account (HSA) works long-term

HSAs have a triple tax benefit. Contributions are tax-deductible, growth is tax-free, and withdrawals are tax-free when used for qualified medical expenses (just be sure to document your receipts in an organized cloud drive so you can provide them if you are ever requested to do so.)

The balance of your HSA will roll over indefinitely, and you can pay for medical expenses out-of-pocket now and let your receipts accumulate over time. 

There is no requirement to reimburse yourself in the same year as the expense, which means that if you have enough receipts accumulated, you could withdraw HSA funds at any time it makes sense (for example buying a vehicle or putting a down payment on a home or rental property). 

As an added bonus for your discipline, HSAs can be withdrawn for any reason (not just medical) without penalty once you reach age 65. In this situation, you will owe income tax similar to a traditional IRA.

Roth vs Traditional IRA

When choosing between a Roth IRA and Traditional IRA, you’ll want to consider your current and future tax situation. 

Traditional (pre-tax) contributions reduce your taxable income now, but the withdrawals in retirement are taxed as ordinary income. This is best if you have high income now but expect to be in a lower tax bracket in retirement. 

Roth contributions are what I believe to be the most powerful tax savings strategy over the long-term. While they do not provide a tax deduction now, the withdrawals (including compounded investment earnings) are tax-free in retirement. 

You do have to be careful contributing to a Roth IRA if your income is over the contribution limit, but this just strengthens the argument to get your tax return done so you know what your adjusted gross income is and whether or not you qualify to contribute to a Roth. 

Other Benefits of Filing Early

There are a few other benefits of filing early worth noting:

Peace of Mind and Reduced Stress

Filing early provides you with peace of mind when tax filing deadlines come around, it is physically healthier. 

Better Financial Planning for THIS Year

Filing early allows you and your accountant to start focusing on current-year tax planning, rather than working on last year all the way up to October 15 (the extension deadline for individuals), and then trying to rush tax planning over the holidays. 

Better Cash Flow Management

If you owe more than expected, you have more time to plan your cash flow needs and make your payment in full without a disruption to your business or family’s finances. 

Faster Access to Funding

Some financial institutions require a completed tax return to process loan applications, including some mortgages when trying to buy a home or rental property. 

Get Your Refund! 

Lastly, if you are owed a refund, you should be trying to file as early as possible. The sooner you file, the sooner you get your funds back. This is the reverse of the time-value-of-money discussion above, don’t let the government hold on to your money any longer than you need to. 

Will You Act? 

At the end of the day, filing your taxes early is not just about avoiding last-minute stress—it’s a strategic move that will put you in a better financial position.

If you haven’t yet filed, consider making it a priority—not just for this year, but as a habit that will serve you well in the long run. 

“Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisors regarding your specific situation.”