Tax is a mandatory payment made by individuals who earn taxable income. However, not everyone is required to file taxes. If your gross annual income is low, you are not required to file a federal tax income. On the other hand, if you earn the minimum income or anything above it, you are required to file taxes.
The minimum income to file taxes depends on a few factors: your filing status, your age, dependency status, and employment status. For singles who are younger than 65, the minimum income is $12,200. If you are 65 or older, the minimum income is $13,850.
The income filing threshold varies for each filing status. So you are only exempted from filing taxes if you earn less than the minimum income for your filing status. In the event where you refuse to file your taxes even if your income falls in the minimum income bracket for your filing status, you will be penalized by the IRS. We’ll be looking at other filing status and their threshold as we progress.
What Is the Minimum Income to File Taxes?
With the deadline for filing federal tax return approaching fast, you see lots of taxpayers scrambling to get things in order, so they don’t fall victims of late-filing penalty. However, some taxpayers aren’t even bothered, and this is because not everyone is required to file taxes.
You are obliged to file taxes if your income falls within or exceeds the minimum income bracket for your filing status. However, you are advised to go ahead and file your taxes even if you earn less than the filing threshold. There are some benefits attached to taking such action. For instance, if your boss held on to federal income tax from your wages, filing a return is the perfect means to recover the money.
Below is a summary of the filing threshold for each filing status:
| Married couples filing jointly, who are younger than 65(both spouses) – $24,400 |
| Married couples filing jointly who are 65 or older (one spouse) – $25,700 |
| Married couples filing jointly who are 65 or older (both spouses) – $27,000 |
| Married couples filing separately (all ages) – $5 |
| For the head of households younger than 65 – $18,350 |
| For the head of households who are 65 or older – $20,000 |
| For qualifying widow or widower who is younger than 65 – $24,400 |
| For qualifying widow or widower who is 65 or older – $25,000 |
The IRS is known to modify standard deductions amounts for inflation per annum, so this filing threshold would likely change in the coming years. Visit the IRS website for recent update on filing threshold.
What Are the Five Types of Income?
When it comes to taxes, there are five heads of income. These income are taxable. This means that if your income falls under any type of income that are listed below, you are required to pay taxes on such income.
Here are the five heads of income:
- Income From Salary
- Rental Income
- Income From Business or Job
- Income From Capital Gains
- Income From Other Sources
Income From Salary:
Income from salary are wages, pension, annuity, gratuity, fees, commission, profits, leave encashment, and yearly accretion.
Rental Income:
This is income derived from assets owned by individuals excluding those occupied by such individual. This type of income is charged as income from house property. In the situation where the property is inhabited, a notional income is added under this head.
Income From Business or Job:
This type of income includes gains or losses from a business organization or an individual. In addition, interests, salary, or reward given to the partner of a firm also falls under this category.
Income From Capital Gains:
This type of income includes long term capital gains and short term capital gains on the sale of any capital assets
Income From Other Sources:
This type of income includes interest on bank deposits and securities, royalty income, lottery winnings, gifts, etc.
What Does the IRS Consider as Income?
The IRS expects taxpayers to pay taxes on taxable income. However, not all income is taxable. This simply means that you aren’t required to pay taxes on some income. To determine if your income is taxable, you need to fully understand what the IRS considers as income.
According to the IRS, income can be in various forms, and they include money, property or services obtained during the tax year. The IRS expects taxpayers to pay taxes on taxable income. This income includes:
- Wages
- Salaries
- Union strike benefits
- Unemployment benefits
- Prizes, awards, gambling, lottery including competition winnings
- Alimony from an ex-spouse
- License payments including royalties
- Severance fee from a former job
- Rental property earnings and security deposits
Generally, income is divided into two types: earned and unearned income. Earned income includes money obtained from an employer for services rendered or money gotten from a business enterprise operated by you. Unearned income includes money that you didn’t personally work for. Such type of income is interest, alimony, social security, etc. All earned income is taxable, but not all unearned income is. For instance, social security (a type of unearned income) is not taxable (though some circumstances require one to pay taxes on this type of income).
Do I File Taxes if I Had No Income?
The IRS expects a certain category of income earners to file taxes. Failure to file your tax comes with harsh consequences. In addition, if you fail to file your taxes on or before the deadline, you will be penalized by the IRS. All these points to the fact that the IRS regard tax payment as a serious issue. However, come to think of it, there are people out there who had no income in a year. Are these sets of people require to file their taxes?
If your income was zero in the last tax year, the IRS doesn’t expect you to file a tax return. You wouldn’t be subject to any penalty for not filing. However, it is advised that you file your taxes even if you had no income in the last tax year due to the benefits that you stand to gain.
You are also not required to file taxes if your income falls below the IRS minimum income requirement. This income requirement, which is modified each year, depends on your filing status, your age, employment status, and dependency status. In a nutshell, if you had zero income in the previous tax year, ensure you think twice before you make up your mind on whether you should file or not file a tax return.
What Happens if I Just Don’t File Taxes?
The IRS is charged by the United States Congress to enforce all tax laws. One of these laws is the compulsory filing and payment of taxes. However, some taxpayer refuses to file their taxes while others end up filing late. The IRS frowns at both misdemeanour and will punish those who don’t abide by their rules.
If you don’t file taxes, the IRS will penalize you. The penalty for not filing taxes is 5% (4.5% late filing and 0.5% for late payment) per month or a portion of the month that your return was due, up to 25%. However, if you are owed a refund, and you file your taxes late, the IRS wouldn’t penalize you. You will lose your refund if you fail to file your taxes three years from the date of the original deadline.
To escape from the IRS late filing penalty, ensure that you file your taxes on the deadline (before midnight) or before the deadline. If you can’t meet up with the deadline, rather than do nothing, you can file for an extension. But you have no note that, the extension extends the filing deadline and not the time you are required to pay. So ensure you pay your taxes in time even after filing for an extension.
What Type of Income Is Not Taxable?
Tax deadlines, be it filing deadline or what have you, do send a chill down the spine of taxpayers. No one wants to be penalized. No one wants to pay more than he or she is supposed to pay as taxes. However, not everyone is scared of taxes or tax deadlines. You can ignore taxes and tax deadlines if your income isn’t taxable. This begs the question, which category of income isn’t taxable?
Non-taxable income are:
- Welfare payments
- Money that is refunded from qualifying adoptions
- Healthcare benefits
- Child support payments
- Money rebate on things you bought from a retailer, manufacturer or dealer
- Alimony payments (for divorce laws completed post-2018)
- Inheritance, gifts including bequests ]
- Roth retirement account income
The Incomes mentioned above won’t be taxed, even if you make the mistake of entering them in your tax return. Medicare and social security are taxable in some circumstance. However, some taxpayers assume that at one point, they’ll stop paying Medicare and social security taxes. Always meet with your tax professional or accountant to figure out which wages are non-taxable and that which needs to be included in your tax return. You wouldn’t want to make a mistake that could get you penalized.
Can You Get a Tax Refund if You Didn’t Work?
A tax refund is one thing most taxpayers look after. It is like rain on a very hot day or chilled water after a long run. It is quite refreshing. However, not everyone is entitled to a tax refund. If you didn’t pay more than you ought to pay as taxes, you wouldn’t get a refund. On the other hand, what if you didn’t work and you filed taxes, will you still get a refund?
Filing taxes even when you don’t work may still produce a refund. This is because income derived from other sources may have been taxed. You are also likely to get a refund even if you didn’t work because some tax credits are refundable credits, even to those who had zero income.
A non-worker including those who don’t work but receive income from other sources may get a tax refund. If you have zero income, the probability of you getting a refund is very low because you didn’t file your taxes. You must note that to get a refund, you must file your taxes. So regardless of if you worked or not, still go ahead and file your taxes.
So you don’t end up losing your tax refund, you need to know how far back you can obtain a tax refund.
Is It True That the More You Make, the Less You Get Back in Taxes?
Misconceptions are like honey bees, plenty in members. The IRS has done its best to educate taxpayers and clear some misconceptions regarding all that concern taxes. However, like an incessant tumour, these misconceptions keep multiplying. One of these misconceptions is about the issue of tax refunds. People believe that the more you make, the less you get back in taxes; but is this true?
No, it isn’t. This is because what you get back in taxes is the difference between what has been withheld from your salary and your original taxes. It doesn’t have anything to do with the money you make.
Before you make conclusions on any vague topic regarding taxes, ensure you do your homework. If you aren’t sure if the IRS pardons tax debt after a decade, ask a reliable source or do you research. You can either contact the IRS or talk to a professional for clarification. Don’t just believe hearsay floating around.
How Do You Get the Most Money Back on Taxes?
Taxpayers wish for two things: to pay less income tax in a very legal way and to get back a substantial amount of money on their taxes. While these things may seem impossible to you, they can be actualized. Here is how to get the most money back on those tax yours.
You can get a significant amount of money back on taxes by doing these things:
- Investing in Tax Planning
- Refinancing Your Home
- Raising Your IRA Donations.
Investing in Tax Planning:
Tax planning remains one of the best means to leverage on deductions and obtain a substantial tax refund. This exercise always begins at the start of the year and considers your potential earnings, including how diverse expenses influence the overall tax amount you’ll end up owing. The benefits of tax planning don’t end there. It also helps you analyze various means of using your cash to purchase required, but tax-deductible items or create other tax-reducing investments.
Refinancing Your Home:
When interests are down, lots of homeowners consider refinancing their homes. Those who do so at a lesser rate enjoy the benefit of reduced mortgage payments, including a reduced amount paid over the mortgage duration. However, are you aware that refinancing your home can also increase your tax return?
When you refinance your home, a huge chunk of your initial monthly payments will be used to finance interest on the loan. While paying a huge amount of money in interest isn’t an enjoyable experience, all of that interest is tax-deductible. According to the recent tax laws, homeowners are to subtract the entire interest on mortgage loans (and refinance plan) up to $375,000 for individual filer and $750,000 for married couples filing together.
Raising Your IRA Donations:
Another effective way of augmenting your tax refund is by raising your contributions to your retirement account. Donating to an individual retirement account (IRA) or 401(k) doesn’t just ease saving for retirement, it also reduces the overall taxable income because it comes off the top. If you are consistent with your IRS contribution, less of your income will be subject to taxes. Generally, the smaller your taxable income, the less you’ll owe in taxes; and if you owe less in tax, you will have a substantial refund.
What Is the Maximum Amount You Can Make Without Having to File Taxes?
Not all income earners are required to file taxes. The maximum amount of money you have to make to not pay tax hinges on a few factors. These factors are your filing status, your gross income, and your dependency other taxpayers. Below are the amounts for some filing status:
If you are single and below the age of 65, you can make up to $9,499 annually and not file a tax return. If you are 65 or older, you could make up to $10,949 and not file a tax return. In the situation when both married taxpayers are below 65, they can make up to $18,999 and be exempt from filing taxes. In the situation where one of the spouses is 65, both could make up to $20,149 and be exempted from filing a tax return.
If both married couples are 65 and over, they can make up to $21,299 and be exempt from filing a tax return. Even if you aren’t required to file a tax return, it is advised that you still file because you may qualify for an earned income tax credit, which is refundable in cash to you. It is also important you note that the rule changes annual so ensure you visit the IRS website for recent updates.
