Incoming! Filing Income Taxes When You Don’t Have Any Income to Report Has Real Benefits

You had me at “you might get money if you file, even if you don’t have income.”

Yes, you can file taxes without income. You probably should.

It is a common misconception that filing income tax returns only matters if you have income.

However, even if you earned no income throughout the year, there are several reasons why you should still file an income tax return. Filing your taxes with no income can establish your eligibility for various tax credits and deductions, as well as ensure that you receive any stimulus payments you may be entitled to. Additionally, failing to file a income taxes can still result in penalties and fines from the Internal Revenue Service (IRS). 

Refundable Tax Credits

Refundable tax credits are a great way to receive a tax refund even if you had no income to report. Some of the most popular refundable tax credits include the Earned Income Tax Credit (EITC), Additional Child Tax Credit (ACTC), and Child Tax Credit (CTC).

To be eligible for the EITC, you must have earned income and meet income requirements. The maximum credit amount depends on your income and number of qualifying children. The ACTC is an additional credit for those who benefit from the CTC and have a remaining credit amount after it has been applied to their tax bill. The CTC provides up to $2,000 per qualifying child.

You can claim these credits on your tax return by using Schedule 8812. The amount of refundable credit you can claim is based on the number of qualifying children, your earned income, and the amount of tax you owe. If the credit amount is more than the tax owed, you can receive a refund for the difference.

Tax Credits

The IRS offers various tax credits to help eligible taxpayers reduce their tax bill and even result in a tax refund, even if they have no income. The Earned Income Tax Credit (EITC) is a refundable credit for low-to-moderate-income workers. There’s a second child credit, the Child Tax Credit (CTC), which provides up to $2,000 per qualifying child, with a maximum credit of $1,400 refundable for the 2021 tax year. Additionally, the Additional Child Tax Credit (ACTC) is available for those who benefit from the CTC and still have credit amounts remaining after it reduces their tax bill.

To be eligible for these credits, you must meet certain requirements, including age limits, income limits, and citizenship or residency status. The EITC, for example, is available for taxpayers who have earned income and meet specific income guidelines. The CTC is for taxpayers who have a qualifying child, while the ACTC is an extra credit for those who still have credit amounts remaining after the CTC reduces their tax bill.

Enjoy Deductions Later by Filing Now

Filing a federal tax return even with no income can certainly benefit you in the future. Firstly, filing ensures that you stay compliant with the IRS. It also establishes a record of your income for the year and tax return filed. Moreover, if you have qualifying deductions or credits, filing your taxes is crucial because they can be carried forward to future tax years and can help offset income tax owed.

However, the Internal Revenue Service (IRS) sets limits on certain credits and deductions that may not fully offset tax bills. If the deduction or credit exceeds your income, the excess amount may be carried forward to the next year. For instance, if you have a leftover deduction from a business or office expense that exceeds your income, you may carry forward the remaining deduction to the next tax year.

If you file your taxes even with no income this year, and the next year you do have income, you need to take these following steps to claim deductions and credits: gather the necessary documents, such as W-2s, 1099s, receipts for expenses; select your filing status; add up all your income for the year; claim your deductions, like student loan interest or business expenses; and finally, claim any tax credits you’re eligible for, such as the Earned Income Tax Credit (EITC) or Child Tax Credit (CTC). Following these steps and filing your taxes annually can help you better manage your finances and potentially increase your refund in the future.

Protect yourself from future audits

Failing to file a tax return can come with serious consequences such as penalties, interest, and even legal action. To protect yourself from future audits, it’s important to file tax returns even if you have no income. Additionally, maintaining accurate and complete financial records is crucial in the event of an audit. This helps ensure that you have all of the information needed to defend your tax returns and prevent further penalties.

Furthermore, the statute of limitations for IRS audits is typically three years from the date of filing or two years from the payment of taxes, whichever is later. However, if you fail to file a tax return or if you have filed fraudulent returns, there is no limit on how far back the IRS can audit you. Keeping all financial records, including receipts and documents related to income and deductions, can help you defend against audits outside of the statute of limitations.

It’s also important to note that there are exceptions to the tax filing threshold. For example, even if you have no income, you may still be required to file a tax return if you receive certain types of income such as the Advanced Premium Tax Credit or if you owe Social Security and Medicare taxes on tips or other income. Self-employed individuals must also be mindful of their earning limits and may be required to file taxes if they earn more business income than a threshold. 

Who Doesn’t Have to File a Tax Return? (They Probably Still Should.)

Not everyone is required to file a tax return. Generally, if your gross income falls below a certain threshold, you won’t need to file. The specific threshold depends on your filing status, with the highest threshold for married couples filing jointly. For example, for the 2020 tax year, single taxpayers under age 65 with less than $12,400 in gross income, or $24,800 for married couples filing jointly, aren’t required to file. Additionally, senior citizens who are over the age of 65 and receive Social Security benefits below a certain threshold may also not be required to file.

However, even if you aren’t required to file, it may still be beneficial to do so. 

Common Questions About Filing Taxes Without Income

Q: Do I need to file taxes if I have no income?

A: If your income falls below the IRS-imposed income threshold, then you’re not required to file taxes. However, you may still benefit from filing to claim certain tax credits such as the health care tax credit.

Q: Can I still file for a tax refund without any income?

A: No, you do not receive a tax refund if you have no taxable income to report.

Q: I’m self-employed, but I didn’t make any money this year. Do I need to file taxes?

A: If your net income from self-employment is $400 or more, then you need to file a tax return. However, if your net income is less than $400, then you’re not required to file.

Q: What tax credits am I eligible for if I have no income?

A: The refundable tax credits such as Earned Income Tax Credit (EITC), Additional Child Tax Credit, and American Opportunity Tax Credit can benefit individuals with little to no income.

Q: What happens if I don’t file my taxes with no income?

A: If you’re not required to file taxes due to low or no income, then there’s no penalty for not filing. However, you may miss out on receiving certain tax credits or stimulus payments.

Q: What if I’m married and my spouse has income?

A: If you’re filing taxes jointly with your spouse, then you must include your spouse’s income in your tax return. The IRS has a minimum income threshold for filing jointly, which usually fluctuates annually.

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