Why You Should Consider Filing Anyway
Even if you are not required to file your taxes during this tax year, it may be beneficial to file and potentially earn a refund in the upcoming year. If you do not file taxes, you are unable to earn any refund that may be owed to you. Some examples of refunds you may qualify for include the First Time Homebuyers credit, the Health Coverage Tax Credit, the American Opportunity Credit, and the Child Tax Credit. There are many other qualifiers that could ultimately provide you a tax refund in the coming year, and it is worth exploring the options and filing your taxes even if you are not required.
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Should I File A Tax Return Even If Im Not Technically Required To
There are some cases where its advisable to file a tax return anyway, even if you could legally decline.
First, if you had federal income tax withheld from your pay, or if you made estimated tax payments, you should file in order to get any surplus withholding refunded back to you.
Second, there are a few tax that can give you a refund even if you didnt make enough income to file. These are called refundable credits. Nonrefundable credits can only apply against taxes you owe.
- Earned Income Tax Credit You could qualify for the EIC if you worked a low-income job. Your credit amount will depend on income level, filing status and how many dependents you claim.
- Child Tax CreditIf you have a qualifying child, the full Child Tax Credit is now refundable.
- Additional Child Tax Credit This credit could be available if you have at least one qualifying child and you didnt receive the full amount from the Child Tax Credit.
- American Opportunity Credit Students in their first four years of postsecondary education could qualify for this credit, up to $1,000 of which is refundable.
With these credits, you have to file in order to receive the benefit.
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Determining What You Owe The Irs: What Is The Minimum Income To File Taxes
If you had a relatively low income this year, you might be wondering if you have to file taxes. First, dont assume that making a modest income means the IRS isnt expecting a tax return from you. If you skip tax preparation due to a misunderstanding, youre still subject to all of the penalties that apply for unfiled returns. Thats why its essential to know the minimum income to file taxes.
Income tax minimum varies by filing status. The IRS has different income minimums for taxpayers based on both filing status and age. If youre filing as single, the income threshold for owing income taxes is much lower. The threshold is also lower for people under the age of 65 than for people over that age.
What Determines Who Must File A Tax Return
- You owe tax to the CRA.
- You are self-employed and have to pay your Canada Pension Plan premiums.
- Same for paying Employment Insurance premiums on your self-employment earnings.
- You and your spouse/common-law partner want to split your pension income.
- Youve participated in the Home Buyers Plan or Lifelong Learning Plan and have repayments owing.
- You disposed of capital property. If you sold your home, you must file a tax return even if you dont have to pay capital gains tax on the sale .
- You have to repay any of your Old Age Security or Employment Insurance Benefits
- You have received a Canada Workers Benefit advance payment in the tax year.
- The CRA has sent you a Request to File.
- If the CRA has sent you a Demand to File, then that means they are serious about your lack of filing and you had better get to it.
Age does not affect your requirement to file a tax return. If you meet one of the above requirements, the CRA expects to receive an income tax return from you. The only time age might excuse you from filing a tax return is when youre 65 or older and your income is below certain very low thresholds.
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How Much Do You Have To Make If Youre A Dependent
You may still have to file a tax return even if youre being claimed as a dependent, depending on a number of factors. Theres the earned income you make, the unearned income you make and your gross income, and the minimums for all of these will be determined by either your age or whether or not you are blind.
If you are a single dependent under the age of 65 and not blind, you will have to file a tax return if:
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Should You File Your Taxes This Year Even If You Didnt Make A Lot Of Money
Even if you didnt meet the minimum income to pay taxes, its still generally a good idea to file. The bottom line is that youre probably entitled to a number of deductions and credits that could result in a nice refund. You also want to look at the whole picture to make sure that youre accurately reporting your entire income. The full formula for determining if you made the minimum to file taxes includes your filing status, federal income tax withheld for the year, and your gross income.
Some people assume they dont need to file taxes based on their paycheck and later realize that other earnings they made throughout the year do qualify as income. If you made relatively little income, filing your taxes will likely be a very quick process that only includes a few tax forms. Taking just a little time to file your return is a much better option than dealing with a surprise tax lien down the road.
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Minimum Gross Income Thresholds For Taxes
The thresholds begin with your gross incomeanything you receive in the form of payment that’s not tax-exempt. Gross income can include money, services, property, or goods.
The thresholds cited here apply to income earned in 2021, which you report when you file your 2021 tax return in 2022. They’re equal to the years standard deduction because you would deduct this amount from your gross income and only pay tax on the difference.
For example, you would owe no tax and would not be required to file a 2021 tax return if youre single and earned up to $12,550 in 2021, because this is the amount of the 2021 standard deduction. Subtracting it would reduce your taxable income to $0. However, you would have to file a tax return if you earned $12,551 because youd have to pay income tax on that additional dollar of income.
As of the 2021 tax year, the minimum gross income requirements are:
- Single and under age 65: $12,550
- Single and age 65 or older: $14,250
- Head of household and under age 65: $18,800
- Head of household and age 65 or older: $20,500
- Qualifying widow under age 65: $25,100
- Qualifying widower age 65 or older: $26,450
The IRS provides a tool on its website that helps you determine if you have to file a tax return based on your circumstances. It takes about 12 minutes to complete.
The Irs Interactive Tax Assistant
There are a series of questions you should answer to help you determine the minimum income amount that applies to you. Lets start with the IRS questionnaire found on their do you need to file page. This questionnaire is provided through the IRS interactive tax assistant , which is a remarkably easy-to-use program found on the IRS website.
The questions are designed to help you determine whether you need to file a federal tax return and if you need to adjust your Form W-4 to eliminate tax withholding.
The IRS has stated that they want to help eliminate wasted time and money from returns that are filed when they dont need to be. I recommend that you take them up on that offer and work through the questions.
According to the IRS website, answering these questions should take you no longer than 10-15 minutes. This is certainly worth your time, especially if it saves the time it would take you to file or if it saves you from having money withheld unnecessarily.
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Do I Have To File Taxes Other Situations That Require Filing A Tax Return
Regardless of income, you’ll generally have to file a tax return if:
You had self-employment net earnings of at least $400.
You received distributions from a health savings account, Archer Medical Savings Account or Medicare Advantage MSA.
You owe taxes on an IRA, health savings account or other tax-favored account.
You owe taxes on household employees.
You made more than $108.28 from a church or church organization.
You owe recapture taxes.
You owe Social Security or Medicare tax on tips you didnt report to your employer or that your employer didnt already take out of your pay.
Advance payments of the premium tax credit were made for you, your spouse or a dependent who got health coverage through the insurance marketplace.
Advance payments of the health coverage tax credit were made for you, your spouse or a dependent who got health coverage through the insurance marketplace.
You owe uncollected Social Security, Medicare or railroad retirement tax on tips you reported to your employer or on group-term life insurance and additional taxes on health savings accounts.
You Can Claim Refundable Tax Credits
Refundable tax credits are particularly valuable for low-income taxpayers because they can provide a refund beyond what you paid for the year via withholding or estimated tax payments.
In other words, if its worth more than the tax you owe, the IRS will issue you a refund for the difference. Refundable credits include:
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The above article is intended to provide generalized financial information designed to educate a broad segment of the public it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
Is It Better To Claim 1 Or 0
By placing a 0 on line 5, you are indicating that you want the most amount of tax taken out of your pay each pay period. If you wish to claim 1 for yourself instead, then less tax is taken out of your pay each pay period. If your income exceeds $1000 you could end up paying taxes at the end of the tax year.
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What Is Your Childs Income Tax Rate
The first $1,150 of unearned income is covered by the kiddie tax standard deduction, so it isnât taxed. The next $1,150 in unearned income is taxed at the childâs tax rate, which is ordinarily lower than the parentâs. Income over $2,300 is taxed at the parentâs maximum income tax rate.
Figuring the kiddie tax can be complex. For example, if a parent has more than one child subject to the kiddie tax, the net unearned income of all the children has to be combined, and a single kiddie tax calculated.
For federal income tax purposes, the income a child receives for personal services is the childâs, even if, under state law, the parent is entitled to and receives that income. So, dependent children pay income tax on their earned income at their own individual tax rates.
When Can You Start Filing Taxes For 2021
Starting next Monday, Jan. 1, the Internal Revenue Service will begin accepting and processing 2021 tax returns. Due to an early start date of the current tax season, this is 17 days earlier than the late start date for the previous one. In case you still need it, you might need to have certain items together.
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Cases When Youll Have To File
Even if you didnt have much income, you may still have to file taxes if any of the following circumstances apply:
- You had Federal taxes withheld from your pension and/or wages for 2021 and wish to get a refund back
- Are you entitled to the Earned Income Tax Credit for 2021
- You received unemployment income
- You were self-employed with earnings of more than $400
- You sold your home
- You owe any special tax on a qualified retirement plan You may owe tax if you:
- Received an early distribution from a qualified plan
- Made excess contributions to your IRA or HSA
- Were born before July 1, 1949, and you did not take the required minimum distribution from your qualified retirement plan
- Received a distribution in the excess of $160,000 from a qualified retirement plan
If any of the above circumstances apply to you then you should file a federal tax return regardless of your earnings.
Most of us with a small business or side hustle will need to file since self-employment income of more than $400 is one of the minimum requirements.
The Tax Code Has Specific Rules About Who Needs To File A Federal Income Tax Return If You Didnt Earn A Lot Of Money You May Be Below The Minimum Income To File Taxes
While youre generally not required to file a federal income tax return if you earn less than the filing threshold, it could still be in your benefit to file. For example, if your employer withheld federal income tax from your wages, filing a return is the only way to get that money back. And you may be eligible for refundable tax credits like the earned income tax credit but you have to file a return to claim them.
Lets look at some things to consider before you decide to skip the filing process.
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Minimum Income To File Federal Taxes
Filing a tax return is an annual practice for most taxpayers, but not everyone is required to do so. In general, if your income is below a specic threshold, you may not be required to le a tax return with the IRS. Heres how much you have to earn to be able to submit taxes.
The federal government of the United States will compel you to submit a tax return based on factors such as your age, handicap, ling status, and income. The charts below will help you determine this.
However, simply because you are not obligated to submit a tax return does not mean you should. Later in this post, well go over why you should submit a tax return even if you dont have to.
Should I File Taxes Even If I Dont Have To
People with income under a certain amount arent required to file a tax return because they wont owe any tax. Its very common to feel like you shouldnt need to file a return if you dont owe any tax. However, owing to tax and having filing requirements are two separate situations in the CRAs eyes.
Even if the amount of income from your childs job doesnt require a tax return, if a refund is coming, a return should be filed. A child should file a tax return for many reasons:
If your child had any income tax deducted at the source, chances are theyll receive those deductions back as a refund.
Filing a return sets up your childs information with CRA for future years. Many first returns still need to be mailed in, as opposed to NetFiling. Once the first return is processed, your childs info will be filed, enabling them to file electronically in the future. Trust me, sending in a paper return for a high schooler is generally much easier than waiting until they have tuition credits or medical expenses to claim.
RRSP contribution room begins as soon as earned income is reported. Even if your child doesnt purchase RRSPs , their contribution room will begin to accumulate as soon as they report their earned income on their tax return.
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