Literally, every year since 1986 we have received the question “Do I need to File an Income Tax Return?” Simply stated, the filing of an income tax return is required by both U.S. citizens, permanent residents and entities earning income above specific threshold amounts ($13,850 for 2023) established by statute (tax code). While the rules can be complex, there are some general guidelines to determine who needs to file a tax return.
- Income Threshold: The most common factor determining whether you need to file a tax return is your income level. If your income surpasses a certain threshold, you are typically required to file a tax return. This threshold varies depending on factors such as filing status, age, and sources of income. Note: income means all income a person or entity received in the form of money, goods, property and services that aren’t exempt from tax.
- Filing Status: Your filing status, such as single, married filing jointly, married filing separately, or head of household, can affect whether you need to file a tax return. Different thresholds may apply to each filing status.
- Types of Income: Various types of income can trigger a requirement to file a tax return. This includes wages from employment, self-employment income, investment income, rental income, and other sources of taxable income. Note: Self-employed individuals must file an annual return and pay estimated tax quarterly if they had net earnings from self-employment of $400 or more.
- Dependent Status: If you are claimed as a dependent on someone else’s tax return, your filing requirements may be different. Dependents typically have lower income thresholds for filing tax returns.
- Special Circumstances: Certain situations may require filing a tax return even if your income falls below the standard threshold. For example, if you owe alternative minimum tax, have self-employment income over a certain amount, or receive certain types of income like unemployment compensation, you may need to file a return.
- Credits and Deductions: Even if you’re not required to file a tax return based on your income, you might still want to do so to claim tax credits or deductions that could result in a refund or reduce your tax liability.
- In summary, determining whether you need to file a tax return involves considering factors such as your income level, filing status, types of income, dependent status, and any special circumstances. It’s essential to stay informed about the tax laws applicable to your situation and consult with a CPA if you’re unsure about your filing requirements.
Always remember to file your tax return by the deadline specified by the tax authorities to avoid penalties and interest on unpaid taxes. Tax laws directly impact an individual’s personal financial plan.
At Paraklete® Financial we work with CPA’s as part of our client’s collaborative team of advisers. The collaborative team is essential to the personal financial planning process. For more information, please visit us at https://www.parakletefinancial.com
