January 10, 2012

To File or Not to File Taxes

Tax season has just begun and if you think you do not have to file any tax returns because your income is lower than the taxable income threshold, then you may be leaving money on the table. Generally, people file tax returns because it is compulsory for those whose income is above the taxable income level. This level varies depending on your filing status, age and the type of income you receive. But I am suggesting to you to file your tax returns even if your income is lower than the taxable threshold in your state. My reason for saying so is that you may get a refund if you had taxes withheld or you may qualify for refundable credits.

If you wish to determine if you are eligible to be taxed and whether you should file tax returns, check out the Individuals section in the IRS website, www.irs.gov. Alternatively, you can refer to Forms 1040, 1040A or 1040EZ that have information that may help you determine if you need to file a tax return with the IRS this year. Yet another way to determine if you should file tax returns is by going to the Interactive Tax Assistant (ITA) service at the IRS website. At this tool, you will be taken through a series of questions where you get responses based on tax law.

Even if your income earned do not qualify you to be taxable, you may want to still submit your tax returns based on the following benefits:

1. Refund of taxes withheld
If your employer made tax withholding deductions on your salary, you had an overpayment made from a previous year applied to this year’s tax or if you made estimated tax payments, you might be due a refund from the IRS.

2. Earned Income Tax credit
If you are a low to moderate income earner, you may qualify for the Earned Income Tax credit (EITC). This is a refundable tax credit designed to help you keep more hard-earned money in your pocket. When the EITC exceeds the amount of taxes you owe, it results in a tax refund for you. But to qualify for this credit you must file a tax return even if you do not earn more than the taxable income level.

3. Tax credit for students
Students in their first four years of postsecondary education may qualify for as much as $2,500 through this credit. Furthermore, 40% of this credit is refundable, which means even if you do not owe any taxes you may qualify to receive up to $1,000 of the credit back in cash.

4. Tax credit for your children
If you have at least one qualifying child and did not receive the full amount of the Child Tax credit, you may be able to claim for Additional Child Tax credit.

5. Adoption credit
Likewise, if you adopted a qualifying child, you may be able to claim a refundable tax credit for the qualifying expenses you paid to adopt your child.

6. Health Coverage Tax credit
If you are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, you may be eligible for a 2011 Health Coverage Tax Credit.

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