A Tax Prep Guide for Early Birds

You may not be an early bird by nature—few of us are—but what better way to start the Spring off right than getting your taxes out of the way? According to the Internal Revenue Service, less than 20 percent of Americans prepare their taxes the old-fashioned way. The majority (60 percent) rely on tax professionals, and 22 percent buy tax-preparation software. Of course, whether to seek out professional help all depends on how complicated your tax situation: "For most people, something like TurboTax is just fine," says Ryan Ellis, tax policy director at Americans for Tax Reform who also runs a tax strategy firm in the Washington, D.C., area. "But if you don't understand the questions on the forms, or if you have rental property, contractor income, any international assets, or have lived in more than one state [in the past year], you might want help from a human being."

For those who choose to go it alone, starting early means you'll have time to fill any holes and read up on any tax breaks that may apply to you. Here's a checklist for making the tax-filing process as painless as possible:

Make a date. Clear an upcoming Saturday or Sunday, and make it official by penciling in "taxes" on your calendar. When that often dreaded day arrives, put on a pot of coffee and some soothing tunes, or plan to reward yourself with takeout at lunch. Depending on your tax situation, you may be able to wrap it up in a single afternoon: According to the IRS, it takes 1040 filers a little over three and a half hours, on average, to complete their forms. Those who use Form 1040EZ typically spend an hour less. Ellis recommends that early birds wait until at least the second week of February to file, since companies have until Jan. 31 to mail W-2s. But if you're an investor, it might be a good idea to hold off another week or so, because brokers, brokerage firms, and mutual fund companies now have until Feb. 17 to send year-end forms to their customers.

Round up those W-2s. If you haven't done so already, pull your W-2s, income statements, and other tax documents out of their hiding places and stash them in one folder. Better yet, procure a binder with clear sheet protectors in which you can store tax documents of years past (you should keep seven years' worth of tax records, according to the IRS. Ellis' tip: If you want to cut down on paper, scan the documents, then shred them.) Don't forget your electronically delivered income statements.

Jump on the e-filing bandwagon. Although e-filing makes it easy to send off your taxes at the 11th hour, early e-filing has its benefits. More than half of all tax returns were filed electronically last year, and for good reason: the process is much speedier than the paper route. And speedier processing means speedier refunds. Federal e-filing ensures that you'll get your refund within 10 days of filing (if you opt for direct deposit). Ellis says there's no need to worry about identity theft when filing electronically: "There are many layers of encryption," he says. "With electronic filing, the security is even more airtight than if you send by mail, because human beings are handling your identification." If you owe money and aren't yet ready to pay the IRS, you can file electronically now and set your automatic payment for April 15.

Be aware of common mistakes. One of the biggest tax errors showing up on early filings concerns the recovery rebate credit, according to an IRS spokesman. The credit is a one-time benefit for people who didn't receive the full economic stimulus payment in 2008 or whose circumstances may have changed. Those scenarios may apply if your income has changed in the past year, you did not get the stimulus payment, or if a child was born or adopted. Only about 3 percent of taxpayers will qualify, says the spokesman; for everyone else, the stimulus payment is not taxable or reportable.

Save some cash. Maybe you know you'll owe the IRS money this year, but you're prone to taking the ignorance-is-bliss route (not surprisingly, most people who wait until the last minute to file their taxes generally owe money, according to the IRS). Getting a jump on your taxes is especially important in this case, given that you could potentially owe more than what you're currently prepared to fork over. "If you owe, you want to know early so you can free up some money," says Ellis. With a little belt-tightening and two months left until the filing deadline, you may be able to pull it off. And if you can't, consider filing an extension. You'll still have to pay penalties and interest, but it will buy you another six months. Another option—which Ellis does not recommend—is to pay your taxes via credit card. The IRS will accept credit-card payments through either of two firms authorized by the IRS to accept credit card payments on its behalf (they are Official Payments and Pay1040.com.) Keep in mind that these firms levy a "convenience fee" for the service.