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10 things that will trigger a tax audit

12 reasons to file a tax return even if you don't have to

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Do you have to file a return? Sorry to be the bearer of bad news, but the answer usually is yes.

But there's a difference between having to file a tax return and submitting a 1040 form because you should. And by should, I mean when it's to your advantage to do so.

Yes, that does happen in the tax world now and then.

When filing is required: First, though, let's look at when the tax code says we must send the Internal Revenue Service a Form 1040. 

Although the 1040 has a new look this year, the rules are the same.

If you are a U.S. citizen or resident who made money last year, whether you must tell the IRS about it depends on three things:

  1. Your gross income,
  2. Your filing status, and
  3. Your age.

The IRS created the table (shown as Chart A in the 2018 Form 1040 instructions) below to give you an idea of whether you should start getting your filing material together.

2018 Filing Requirements for Most Taxpayers


 If your filing status is: 

 AND at the end of 2018
 you were:

THEN file a return if your gross income was at least:

 Single

 64 or younger
 65 or older

 $12,000
 $13,600

 Married filing jointly

 64 or younger (both spouses)
 65 or older (one spouse)
 65 or older (both spouses)

 $24,000
 $25,300
 $26,600

 Married filing separately

 Any age

 $5 (Yes, five bucks)

 Head of Household 

 64 or younger
 65 or older

 $18,000
 $19,600

 Qualifying widow/widower

 64 or younger
 65 or older

 $24,000
 $25,300

 

A quick filing note for some older New Year's Day babies. The IRS says that if you were born on Jan. 1, 1954, you are considered to be age 65 at the end of 2018. That one-day shift lets you make a little more before you have to mess with filing.

Also, for filing requirement purposes, the IRS says that gross income means all income you received in the form of money, goods, property, and services that isn't exempt from tax, including any income from sources outside the United States or from the sale of your main home, even if you can exclude part or all of it.

In this gig economy world, all income definitely means money from these jobs, be they your full-time work or simply side hustles to supplement your wage income. And the earnings count even if you don't get an official tax form, usually a 1099-MISC or 1099-K.

You don't, however, have to include any Social Security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2017 or (b) one-half of your Social Security benefits plus your other gross income and any tax-exempt interest is more than $25,000 or $32,000 if married filing jointly.

And since the IRS has seen it all, it notes that if even if you're married, if you didn't live with your spouse at the end of 2018 (or on the date your spouse died) and your gross income was at least $5, you must file a return regardless of your age. That's the same as the five-buck income threshold for married filing separately folks.

There also are filing matters to consider if someone can claim you as a tax dependent. Basically, your filing requirement again takes into account your filing status, age and income. Chart B in the 2018 Form 1040 instructions has details.

Again, I'm just the messenger when it comes to keeping the IRS off your back when it comes to filing, so please, as the old saying goes, don't shoot me.

Other filing factors: One of the biggest complaints about taxes, aside from the actual dollars we pay, is how complicated they are. That's obvious in the rules regarding income and filing status above that determine whether you must file a 1040.

But there also are other factors that, well, factor into the decision. They include —

  • You have household help and pay your employees enough to trigger employment taxes. For the 2018 tax year, that's $2,100 and it means you must file a Schedule H with your 1040. Although this requirement is popularly called the nanny tax, it covers not just childcare assistance, but also maids, housekeepers, gardeners and others who work in or around your private residence as your employee. Note the designation as employees. This doesn't apply independent contractors who do household work for you. Be careful here. The IRS looks closely at worker designations. The good news, though, is that if you are filing a tax return only because you owe this tax, you can file Schedule H by itself.

    Domestic-staff-training_British School of Etiquette

  • You or your spouse or dependents got advance payments of the premium tax credit to help cover medical coverage purchased through the healthcare Marketplace. You need to file to reconcile those amounts.
  • You made, after expenses, at least $400 from self-employment. While you might not technically have made enough to require filing, you still have to file in order to pay the self-employment (SE) tax on these independent earnings. The tax due here, calculated on Schedule SE, is the self-employed person's version of the payroll taxes that go toward Social Security and Medicare, aka FICA, that are taken out of salaried workers' checks. Again, it bears repeating. It's possible you could owe SE taxes, but no income tax. However, you still must file to report those independent earnings.
  • You didn't report all your tips to your employer. You now need to do that by filing a return and also paying the SE tax on those gratuities. The same SE filing is required if you got a paycheck, but your employer didn't withhold these FICA taxes
  • You owe the Alternative Minimum Tax (AMT). This parallel tax, created in the 1960s to ensure that rich taxpayers paid at least some (aka minimum) amount of tax, used to snare a lot of middle-income filers because it wasn't indexed for inflation. That changed in 2013, with the annual exemption amounts now reducing the number of folks caught in this tax net. The TCJA went even further, increasing AMT phaseout threshold amounts to $1 million for married taxpayers filing a joint return and $500,000 for all other taxpayers. If, however, you make enough that you have to pay the AMT, then you must file.

You can find more about filing requirements in the IRS' general tax guide, Publication 17. You also can use the IRS' online tool to determine whether you need to file this year.

When you should file: OK, you've discovered you technically don't have to file a return. Great, right?

To borrow one of Donald J. Trump's favorite words, Wrong!

Sometimes even if you don't have to file a tax return, it's to your benefit to do so.

Here are 12 situations when you should file a federal income tax return:

  1. You had federal income tax withheld. The only way to get any of this excess money back as a refund is to file a 1040.
  2. You made estimated tax payments. You want to make sure the IRS knows that you sent in these extra amounts for income that's not subject to withholding.
  3. You qualify for the Earned Income Tax Credit (EITC). This tax break for lower- and middle-income workers is, as the name says, a credit, which means it reduces any tax you owe dollar-for-dollar. It's also a refundable credit, meaning you can get a tax refund even if you don't owe any tax. The amount of the credit and the income thresholds are adjusted annually for inflation, with as much as $6,431 available to some EITC eligible filers for the 2018 tax year.
  4. You qualify for the refundable portion of the Tax Cuts and Jobs Act's (TCJA) new child tax credit. Like the EITC, this additional child tax credit means you could get money back — as much as $1,400 — even if you don't owe any tax.
  5. You qualify for the Affordable Care Act's (ACA) premium tax credit. Yes, Obamacare is still law. Most people who qualify for this credit get it in advance — which, as noted in the must-file discussion above, means you have to send in a Form 1040 — when they purchase their health insurance via the Marketplace. But you do have the option of paying all your premiums in full yourself during the tax year and then claiming the credit when, you got it, you file your return.
  6. You qualify for the health coverage tax credit (HCTC). The HCTC is a refundable tax credit that pays 72.5 percent of qualified health insurance premiums for eligible individuals and their families. This is a separate, more narrow tax credit with different rules than the ACA's premium tax credit. The IRS has a special Web page with HCTC eligibility and claiming details.
  7. You qualify for the American opportunity tax credit. This educational tax break could give you a credit of up to $2,500 and portion of it — up to $1,000 — is refundable to some qualifying filers.
  8. You qualify for the credit for federal tax on fuels. With this one, you might have to wait to file. This relatively arcane tax break for biodiesel and renewable diesel fuels, as well as the alternative fuel credit, had expired. They are part of the group of tax breaks known as extenders, which are still awaiting Congressional action. If they are renewed for the 2018 tax year and beyond, you'll be able to claim them. For now, you can get an extension if this tax break makes a big difference to your filing or you can amend your return later if the credits are restored. Form 4136 instructions have more details.
  9. To establish a placeholder for tax deductions and/or credits you need to carry forward. TurboTax points out that, for example, you can't claim a home office deduction so large that it would produce a loss. Instead, you claim zero business income for the year and carry any leftover deduction into the next year. But in order to claim that extra write-off in future years when you do have more income, Smart Money writer Bill Bischoff says you need to file for that initial claim.
  10. You got a Form 1099-B. Even if you aren't required to file a return, if you got this document (or substitute statement) which details, per its title, Proceeds From Broker and Barter Exchange Transactions, you might want to file a return. IRS Publication 501 details on page 5 the reasons why, the most convincing of which is that "filing a return may keep you from getting a notice from the IRS."
  11. You must file a state return. Most states collect some sort of income tax. And most of those 43 jurisdictions use their residents' federal tax filings as the basis for the state returns. But your state may have some differences with Uncle Sam's tax laws when it comes to filing requirements. So if you have to file a state tax return, submitting a federal version could help you comply with your state tax responsibilities. Or even get a state refund.  
  12. To start the audit statute of limitations clock ticking. The IRS generally can go back three years to look at your old tax filings. But that time frame doesn't start until you actually file a 1040. So even if you didn't make quite enough to trigger the filing requirement, you might want to make sure the IRS can't come back, say, 10 years from now to ask about why you didn't file in 2018.

The main reason to file, though, even if you don't have to is to get tax cash. The IRS doesn't know what tax breaks you qualify for, so it's not just going to send you the cash.

The only way to get any tax money you're owed because of over-withholding or tax credits you qualify for is to file a return and claim them.

So if any of these dozen potentially positive tax-filing circumstances apply to you, send in a federal 1040!

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Comments

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Debra Sloan

Another reason to file even if not required to do so would be to ensure that there isn't someone else using your information to file a fake tax return.

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