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Taxes: The rewards of filing early
It's not just a refund that awaits early birds
February 2, 2004: 10:09 AM EST
Leslie Haggin Geary, CNN/Money staff writer

NEW YORK (CNN/Money) – Time to face reality. Tax season is here and the only way around it, so to speak, is to slog through it.

But here's some encouragement. There are more tax savings this year then ever so you may even have a nice, fat check from the government when all's said and done. (In fact, most filers should get money back. Last year, three out of four got refunds.)

Even if you expect to owe money, and have no idea how you'll pay the tab, it makes sense to file early so you can avoid the possibility of getting hit with potential fees and penalties.

To help you get cracking, we've laid out the following game plan:

Gather your records

Those W-2's, dividend forms and other year-end tax statements are trickling into your mailbox. They must be mailed to you by Jan. 31, so be on the lookout.

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If you think there's a chance your documents may be lost -- say, you moved and didn't leave a forwarding address -- then it's up to you to track them down.

You may also want to dig out last year's tax return. Things like unused investment losses from previous years can help you save if you've got capital gains this year.

For more on that, see Make the Most of Your Losses.

Hire a pro early

If you're among those who turn to expert help to file your tax return, book your pro now.

Tax season is a notoriously frenetic time for accountants and the like. If you want your preparer to give your return extra attention and careful scrutiny, the best time to sit down with your preparer is early in the season.

"From March 15 forward, it just gets nuts," agrees Evan Snapper, principal at Yohalem & Gillman in Manhattan. "If you want someone to focus, it's not a bad idea to hire someone now."

Another reason to meet with experts early? The sooner you talk about tax-saving moves, the more you'll be able to salt away for yourself in 2004. To get some ideas now, see "The most overlooked tax breaks."

Anyone can prepare your taxes -- a CPA or the guy who rotates your tires -- so choose carefully. After all, you're the one who's ultimately liable for what's on that 1040. For tips on finding a real pro vs. an amateur check out "How does your tax guy rate?"

... Or file electronically (it doesn't have to cost you a dime)

Hats off to you if you're determined to file your own taxes. But you might want to consider filing an electronic return. That's because about 1 percent of e-returns have mistakes vs. a 15-percent error rate for paper returns.

If you do opt to file electronically you've got plenty of choices, from tax software to secure online tax sites. Fees for software or these sites typically run $30.

If the cost of e-filing is stopping you, look at the "Free File" alliance, a free service started by the IRS to encourage more people send in their returns electronically. The government program recently generated some controversy when it required tax firms that participate to flag returns that were prepared for free.

There are other free programs, too. AARP's Tax-Aide provides free tax-prep assistance to low-and middle-income individuals of any age, not just retirees. The 30,000 volunteers who assist than 1.7 million taxpayers get their returns in are trained by the IRS to help. For a Tax-Aide center near you, click here or call (888) 227-7669.

Keep an eye out for new tax breaks

The overhauling of the tax code last year means more money for your kids and lower taxes on investments.

The new child tax credit is $1,000, up from $600 and the government already sent "pre-refunds" to many. If you didn't get the money, you'll need to fill out Form 8812, which you can download off www.irs.gov.

Meanwhile, long-term capital gains rates have been cut from 20 percent to 15 percent. But these new rates only apply to investments sold after May 5, 2003, and interest earned from mutual funds is taxed at your highest marginal tax rate. It may take time to sort through records and figure out which rates apply, so start gathering those records now.

For more news about tax breaks to look out for click here.

Start paying the tax man now

If you expect to owe money this year, you may be planning to put off your taxes as long as possible. That could be a costly mistake.

If you owe money after April 15, the IRS will charge you 4 percent interest plus .05 percent of your unpaid balance in monthly penalties. But if you pay your bill before the due date - even if you have to make installment payments - you won't owe interest or penalties.

Just file your tax return, any payment you can afford to make now, and Form 9465 the "Installment Agreement Request", which you can download off the IRS Web site. The IRS does charge a $43 fee to set up the installments (which can be made via check, electronic-fund transfers or credit cards).

Companies like Official Payments Corp , which process tax payments made by credit card, charge so-called "convenience fees" that typically run $25 for every $1,000 you owe. That's above any double-digit interest rates you'd owe your credit card company if you're unable to pay their charges in full and on time.

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If you're tempted to skip the entire exercise, and not file at all, be forewarned. The IRS takes a far dimmer view of folks who don't file than it does with late payments.

Penalties for non-filing run 5 percent of whatever balance you owe for each month, or part of a month, you're late and can be as much as 25 percent of the tax due. If your return is more than 60 days late, the minimum penalty will be $100 or the amount of any tax you owe, whichever is smaller.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.