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Conquer Your Fear of Tax Season

By Jeffrey Levine, Director of Retirement Education 
Follow Me on Twitter: @IRAGuru4EdSlott
 

One of the most common questions asked during tax season is, “Do I have to file a tax return?” The answer, of course, is a bit complicated, but in general, if your income is equal to or greater than the sum of the standard deduction plus your personal exemption, you must file a return. The standard deduction is higher for those 65 or older, so age makes a difference in some cases.

For 2016, the standard deduction was $6,300 for single filers under 65 and $7,850 for single filers 65 or older. If you are married, file a joint return and both you and your spouse were under 65 in 2016, the standard deduction is $12,600. If you file a joint return but one of you was 65 or older the standard deduction is increased $13,850, and if you were both over 65, the standard is increased to $15,100. The personal exemption amount for 2016 was $4,050.

So what does that all mean? Well, let’s put it in more explicit, less IRS-like lingo. If you are a single filer and your 2016 income was equal to or greater than $10,350 ($11,900 if you were 65 or older), you should generally file a return. If you are married and file a joint return, and you and your spouse had $20,700 ($21,950 if one of you was 65 or older, $23,200 if you were both 65 or older) or more of income, you must generally file a return. Other limits apply if you are married but file a separate return from your spouse, if you file as head of household, or if you file as a qualifying widower.

A word of warning, the rules above only apply if no one else can claim you as a dependent on their return. There are also other rules for self-employed persons, so be sure to speak with your tax professional before deciding not to file a return.

For more information on determining whether or not you have to file a return, see IRS Publication 501 (Exemptions, Standard Deduction, and Filing Information).

Of course, it should be noted that just because you don’t have to file a tax return doesn’t mean that you shouldn’t file a tax return. There are many reasons to file, even when you don’t have to, including:

- If you’re entitled to a refund or can claim a refundable credit.

- You want to start the statute of limitations “clock” ticking.

- You want to file a return showing the income you’ve earned to back-up an IRA or Roth IRA contribution.

- You think your CPA is not busy enough during tax time.

Ok, so maybe not that last one. But you get the point, there are some compelling reasons to file a return even when it’s not required. The one good thing about filing a return is that there really isn’t much downside. It’s not like you can ever owe more than you otherwise would. If your tax liability is $0 without a return, it will be $0 with a return. The only difference is, if you file a return, after 3 years, the IRS generally can’t question that amount (except in cases of fraud).

 
 
 

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Posted in: jeffrey levine, Tax, IRA, Roth, IRS