Depending on your situation, you may or may not be required to file income taxes. If your income is less than the standard deduction you are not required to file an income tax return. For single filers, this amount is $12,000, if you are married filing jointly this amount is $24,000. However, even if your income falls under this amount there may still be some situations when you may want to file. In this article, we will go over some of these situations and why you may or may not want to file.
When You Make Less Than the Standard Deduction
Even if you make less than the standard deduction, it still may be advantageous for you to file a tax return. If you are a W-2 employee, you have taxes withheld from each paycheck. By filing a tax return, you may be able to get a refund of some of the withheld funds. Also, you may be eligible for certain tax credits. Some of these credits are refundable, which means you are entitled to receive them in full. The tax credits you may be eligible for include the earned income tax credit and the child tax credit.
If You Are a College Student
Most college students are focused on their studies, so their income tends to fall below the standard deduction amount. Before you file there are a few things you need to consider. First, you need to determine if your parents are going to claim you as a dependent. If they are and your income is below the standard deduction amount, there may be no need to file a tax return of your own. However, if you do not have parents claiming you as a dependent you may want to file a tax return. This is the case because you may be eligible for education tax credits. This includes claiming the American Opportunity Tax Credit (AOTC).
During Retirement
When you get into retirement taxation can get more complicated because you may have income coming from multiple sources. So, whether you need to file taxes will depend on where your money comes from and if it goes over certain limits. If you are 65 and older the standard deduction is slightly higher. If you are single this amount Is $13,600. For married couples, the standard deduction is $26,600. If you have social security income it may or may not be taxable. Money withdrawn from Roth IRAs will not be subject to tax. But other investments, like IRAs, will require tax to be paid, with means you may need to file a tax return.
What If You Do Not File
If you fall under the standard deduction amount and you choose not to file you should be aware of the potential consequences. Those who owe and do not file may be subject to fees. This includes being subject to the failure to file, failure to pay, and interest penalties. On the other hand, if you are due a refund and you do not file you are giving up money you are entitled to. You only have three years to file before you lose your right to claim past funds.
Should I File a Tax Return?
Whether or not you should file a tax return will depend heavily on your situation. If you are unsure of what you should do you should meet with a qualified tax preparer. Additionally, with a low-income level, you typically can file your taxes for free through the Free File Alliance. Due to this, why not see if filing a tax return would be advantageous for you.
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