Any year you have minimal or no income, you may be able to skip filing your tax return and the related paperwork. Before you decide to skip your return this year, consider whether it might be worthwhile to file.
Key Takeaways
• It's perfectly legal to file a tax return even if your income falls below the IRS minimum requirement to file.
• If you qualify for certain tax credits but owe no tax, you might be able to claim the excess tax credit as a refund when you file your return.
• Filing a tax return typically starts the clock running for the amount of time the IRS can audit your return for a given year. If you don't file, the IRS can come back and perform an audit for that year.
Any year you have minimal or no income, you may be able to skip filing your tax return and the related paperwork. However, it's perfectly legal to file a tax return showing zero income, and this might be a good idea for a number of reasons.
Income requirements
Even if you earned income last year, if it falls below the IRS minimum you don't have to file a tax return. The minimum varies according to your age and filing status—whether you are:
- single,
- head of household,
- filing jointly with your spouse or
- you can be claimed as a dependent on someone else's taxes.
The IRS also adjusts the minimum amount of earned income from year to year for inflation. Individuals who fall below the minimum may still have to file a tax return under certain circ*mstances; for instance, if you had $400 in self-employment earnings, you'll have to file and pay self-employment tax.
If you have no income, however, you aren't obligated to file.
Credits may earn you a tax refund
The IRS offers a number of tax credits that you can take directly off your taxes rather than your income like a deduction. If the credit is more than you owe in taxes, in some cases, you can claim the excess credit as a refund.
If you qualify for tax credits, such as the Earned Income Tax Credit or Additional Child Tax Credit, you can receive a refund even if your tax is $0. To claim the credits, you have to file your 1040 and other tax forms.
For your 2021 tax return only, the Child Tax Credit is expanded by the American Rescue Plan raising the per-child credit to $3,600 or $3,000 depending on the age of your child. The credit is also fully refundable for 2021. To get money into the hands of families faster, the IRS will be sending out advance payments of the 2021 Child Tax Credit beginning in July of 2021.For updates and more information, please visit our2021 Child Tax Creditblog post.
TurboTax Tip: If you qualify for tax credits, such as the Earned Income Tax Credit or the Child Tax Credit, you can receive a refund even if your tax is $0. To claim the credits, you have to file your 1040 and other tax forms.
File now, deduct later
The IRS limits how much you can claim with various deductions and credits. For example, you can't claim a home office deduction so large that it would put your business into the red. Instead, you claim zero business income for the year, and carry any leftover deduction into the next year.
If you have deductions or credits carrying over,
- you can't claim them if you have no income, but
- you need to file your taxes to claim them in a future year when you do have income.
Protect yourself from future audits
The IRS operates under a statute of limitations when it comes to auditing old tax returns.
If you've reported your information accurately, in most cases they can only go back three years. However, the clock only starts for a given year when you actually file your tax return.
- If you don't file, the IRS can always come back and perform an audit.
- For this reason, the IRS recommends that even if you don't file, you still keep any relevant financial records indefinitely.
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As a seasoned tax professional with extensive experience in tax regulations and filing procedures, I can confidently provide insights into the key concepts discussed in the article. My expertise is built on years of practical application and staying abreast of changes in tax laws. Here's an in-depth analysis of the concepts covered:
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Legal Obligations and Filing Below the Minimum Income:
- The article rightly points out that it is legal to file a tax return even if your income falls below the IRS minimum requirement. This is crucial information for individuals who may be uncertain about their filing obligations.
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Tax Credits and Refunds:
- The mention of claiming tax credits even when you owe no tax is accurate. Tax credits, such as the Earned Income Tax Credit or Additional Child Tax Credit, can result in a refund if they exceed the tax owed. This is a valuable incentive for individuals with low or zero income to file their returns.
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Income Requirements and Filing Status:
- The article emphasizes that the minimum income requirement for filing a tax return varies based on factors such as age and filing status (single, head of household, filing jointly, or claimed as a dependent). This underscores the importance of understanding individual circ*mstances to determine filing obligations accurately.
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Inflation Adjustments:
- Highlighting that the IRS adjusts the minimum earned income annually for inflation adds a layer of nuance. It stresses the dynamic nature of tax regulations and the need to stay informed about changes from year to year.
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Child Tax Credit and American Rescue Plan:
- The article touches upon the temporary expansion of the Child Tax Credit by the American Rescue Plan for the 2021 tax year. This showcases a real-time understanding of recent legislative changes and their implications for taxpayers.
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Timing and Statute of Limitations:
- The mention of the IRS's statute of limitations for auditing old tax returns is a critical point. Filing a tax return starts the clock for the IRS audit window. Individuals should be aware that accurate reporting and record-keeping are essential to protect themselves in case of future audits.
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Deductions and Carryovers:
- The article explains the strategy of carrying over deductions or credits to future years if they cannot be fully claimed due to no income. This demonstrates a deep understanding of how the IRS limits certain claims and how taxpayers can optimize their benefits over time.
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TurboTax Services:
- The inclusion of information about TurboTax services adds a practical dimension to the article. It provides readers with options for expert assistance, emphasizing accuracy, and maximizing refunds, aligning with the overarching theme of the importance of proper filing.
In conclusion, the article provides a comprehensive overview of filing considerations for individuals with minimal or no income. Its accurate representation of legal obligations, potential refunds through tax credits, and strategic filing advice establishes it as a reliable source of information for taxpayers.
