No one enjoys filing their taxes — not even the late John Lennon, according to his fellow Beatle Paul McCartney.
Asked in a recent New York Times interview to share something people don't know about the Beatles, McCartney revealed that in a famous candid photo taken the same day as the "Abbey Road" album cover shoot, he was explaining to John why he needed to file his taxes. "I was trying to say to him, 'Listen, man, you've got to do this.' I was trying to give him the sensible advice on not getting busted for not doing your taxes. That's why I looked so earnest," McCartney told the Times.
If your income falls below certain levels, you can probably get away without filing income taxes in a given year. But there are many good reasons to do so, experts say, whether you have to or not.
Strictly speaking, anyone who earns $3,000 or more in a given fiscal year is supposed to file taxes for that year, says certified financial planner Mark La Spisa, the president and managing advisor of Vermillion Financial Advisors in South Barrington, Illinois. That said, if you owe no taxes in a given year, in theory you won't get a financial penalty for not filing.
Specifically, here are some circumstances in which you might not owe taxes:
- You are single and earned $12,400 (the standard deduction) or less in a given year outside of self-employment but including unemployment benefits, and you're under 65. If you are married and filing jointly, the cutoff is $24,800
- Your income comes from disability benefits for which you — and not your employer — are paying the premiums
- Your income comes from Social Security benefits that are less than $25,000 in a given year for individuals, and less than $34,000 for those who are married and filing jointly
If you fall into any of the above categories, you are most likely not going to owe taxes. "Many people who don't owe taxes tend not to file," says La Spisa. That is, they're supposed to file but will not get financial penalties if they don't.
If you don't file taxes, though, says La Spisa, "you've got all kinds of problems down the road. Try to get a mortgage, car loan, or an apartment rental — all these things require your ability to prove income." In some situations, such as mortgage applications, you might need to produce tax returns going back several years.
Even if you don't see yourself buying a car or changing dwellings any time soon, experts say there are many good reasons to file your taxes every year.
Maybe you're sure that you don't owe money, but are you equally certain that you didn't pay too much in payroll taxes? The IRS may have money for you that you're owed and deserve. If you don't file, though, you can't get it, which means you might basically be giving the government a present.
Each spring, the government warns taxpayers as time winds down to request unclaimed refunds from prior years. In early 2020, the government announced it still had $1.5 billion worth of unclaimed 2016 refunds for 1.4 million taxpayers. The median refund was $861.
In April, when the IRS began sending stimulus checks to qualified households, the government determined everyone's eligibility from their previous year's income as stated in tax returns. Households who didn't file taxes in 2018 or 2019 were excluded from the first round of payouts, and many of those are still waiting to receive checks.
If there are more such checks in the future, it's a safe bet that those who filed returns will see the money a lot faster than those who don't.
Video by Jason Armesto
Once you submit a tax return, there is generally a three-year statute of limitations for the IRS to challenge you for an audit, says Jim Guarino, managing director of Baker Newman Noyes in Woburn, Massachusetts. But if you don't file for a given year, it's always going to be open season for the IRS to audit that undeclared year.
"Let's say 10 years down the road, for some reason a chunk of income you never reported gets discovered by the government. In theory, the government has up to three years to challenge you to be audited. But in this instance, since you never filed a return, the statute of limitations never started and the government could challenge you on that income even if it's 10 years old," says Guarino. "You want to start the clock on the statute of limitations as quickly as possible."
Some people stand to get money by filing taxes that they would never get otherwise, says Guarino. The Earned Income Tax Credit (EITC or EIC), for example, is available to some taxpayers whose incomes fall below a certain threshold, particularly if they have children.
Another example is the American Opportunity Tax Credit, which covers some educational expenses. "I hate to use the term 'free money,' but it's a refund on money that you didn't pay in," says Guarino. "It's intended to relieve financial pressure for those of us who need it."
Video by Stephen Parkhurst
The standard deduction for federal taxes in 2020 is $12,400 for individuals and $24,800 for couples filing jointly, but "depending on the state you live in, the filing threshold might be much less," says Guarino. New York state, for example, has a standard deduction of $8,000 for a married couple filing jointly. So if your income were $10,000, you'd owe nothing for federal taxes but you might still be on the hook for state taxes.
Guarino signed his children up for Roth IRAs when they were teenagers so they could invest their income from summer jobs. "One year, my kid had $2,500 of income at age 16." Guarino's daughter wouldn't have had to file taxes for an amount that low, but Guarino insisted she do so anyway so she could put all her earnings into a Roth IRA.
"In order to have a Roth IRA, you have to prove you earned the right income level to qualify," says Guarino, for which you need to have filed your taxes. "The Roth is good especially for folks who are in a very low tax bracket," he adds, because Roth income is tax-free.
"You'll sleep better at night knowing you are all set with 'Uncle,'" says Guarino. "I like to go to bed with no worries."
If you've been avoiding filing taxes because of the hassle, La Spisa notes that help can be relatively affordable. At a tax preparation chain, "if you made less than $12,400 and owe no taxes, they will charge $50 or $100." If that's prohibitive, says La Spisa, many of the big tax prep software providers offer free filing for federal taxes to taxpayers with simple returns. If your income is around $69,000 or less, you can file without charge using Free File, a partnership between the IRS and the nonprofit Free File Alliance.
IRS-certified volunteers offer free tax assistance through two programs: The Volunteer Income Tax Assistance (VITA) offers free tax help to those who make $56,000 or less per year, or have disabilities or limited English skills. Tax Counseling for the Elderly (TCE) provides free tax assistance to people who are age 60 and older.
Filing and paying taxes rarely makes people happy. As the Beatles sang in their 1966 song "Taxman," "Let me tell you how it will be / There's one for you, nineteen for me." But even if you don't owe a cent, filing taxes can give you many protections — and financial benefits — you wouldn't have otherwise.
More from Grow: