Income Tax Return
Does the thought of sitting down and trying to figure out how to file a tax return make you want to pull out your hair? Just think, if you were regularly employed and living in England, you wouldn't have to fill out a tax return every year. Unfortunately English rules don't apply here, and most of us have to fill out a tax return annually. However, even in the US, not everyone has to file a return.
Don't we all have to file a tax return?
It seems like it, but in reality the IRS only demands returns from people who fall into certain categories, and they determine who falls into what category based on three parameters.
- filing status
- income level
In general, your filing status is based on your marital status on the last day of the year. If you were single or legally separated from your spouse, your status would be single. If you are married, you and your spouse will have the choice of filing single or a joint return. Head of household and qualifying widow or widower are the other IRS status.
Filing requirements vary based on filing status, so ensuring you are in the right status is very important. For example, a married couple filing a joint return can earn more money before they have to file than if they filed separately as single status taxpayers.
- From the IRS perspective anyone who has income should file a return, but there are special rules for people over the age of 65 (they can earn more before they have to file than younger people), and for children under the age of 14 who have investment income.
- Your income
You do not have to file income taxes if your gross income does not exceed certain limits. Gross income is all the income you received that is not exempt from tax. For example, tax-exempt interest and return on capital, are not parts of gross income. However, employment income, income from self-employment and investment income is all taxable.
- The dollar limits on which you pay taxes vary depending on your tax filing status. The IRS also adjusts the dollar amount requirements to reach the filing limits annually, so you can't assume this year's dollar amounts are the same as last years. Once again, the FAQ section of the IRS web site can provide up to date information.
Why would I want to file a tax return?
You may also be eligible for certain tax credits and a tax refund. For example, depending on your employment situation you may have had taxes withheld even though you didn't meet the earnings filing threshold. The only way to determine if you are eligible for a refund and to get your money is for you to file a tax return.
So, for some folks filling out a tax return can actually be a good thing.