File Your Tax Returns Early
I’m a strong believer in filing taxes as early as possible. Whenever the government over-deducts through automatic withholding (and you get money returned), you have essentially given the government a free loan. This year, it became possible to file Federal taxes on February 14th, 2011, as a result of a delay from some last minute changes in the tax code. Given that taxes are due April 15th, it makes sense to file early and get any excess taxes returned sooner.
Automatic withholding started during World War II. I think it has been rather financially damaging to the American people, as a surprising number of people take out high-interest “rapid refund” loans against over-withheld money. Likewise, many Americans owe substantial debts that have high interest rates. If people did not pay taxes until they were due, they would be able to avoid some of these interest payments, and might even make a small profit on their tax money if they invested it prudently. Nonetheless, automatic withholding is now required. The damage can be minimized by correcting your Form 1099 to accurately reflect your overall tax obligations, minimizing your “refund” and maximizing your paycheck. Unfortunately, when receiving multiple sources of income, withholding is inaccurate. In these cases, the best that can be done is to file tax returns as early as possible, in order to receive any over-paid money as quickly as possible.