First Time Filing Taxes: Do I Need to Report Even with Low Income?

Many individuals are filled with trepidation when the time comes to file their first tax return, especially if they didn’t earn much money throughout the year. This article aims to clarify when and if you need to file a tax return even if your earnings were minimal.

Required Tax Filing Criteria

Must You File a Filing Yearly?

Not everyone needs to file a tax return. According to the IRS, if you have reportable income, you must file a return. Many retirees don't have taxable income, but they are still required to file annually. For example, as some of my clients have noted, even though some government benefits and retirement distributions may be taxed, the government still requires filings.

Income Thresholds and Return Filing

For an individual taxpayer in India, the mandatory filing threshold is around Rs. 250,000 (as of my last update). However, it is generally advisable to file even if your taxable income is under this level, to ensure receipt of any entitlements or credits.

US Taxation Standards

In the United States, the situation is slightly different. If your taxable income, without any deductions, is below the 2022 threshold of $12,950, you typically don’t need to file a tax return. However, if you want to ensure you receive any refunds or credits, it's still a good practice to file.

Why File Even with Minimal Income?

It is important to note that you must file a tax return even if you do not owe taxes. If you made any income, you are entitled to a refund on the taxes you paid. This applies to almost every taxpayer, regardless of their income level.

Effects on Tax Earnings

Income taxes are not dependent on the amount of money you currently possess. They depend on the amount of taxable income earned during a given period. It is always beneficial to file, as you will be entitled to any refunds or deductions you are owed.

Complexity in Tax Filing

Tax filings can be complex, especially if you have multiple sources of income or numerous deductions. For instance, if you have earned income from multiple jobs, investments, or business ventures, you may need to account for a variety of deductions and income sources.

Resources and Assistance for Filing Taxes

For comprehensive tax information, the IRS and similar organizations in other countries provide all the necessary forms and instructions for free. The main federal tax form is the 1040. This form accounts for all your sources of income, deductions, and credits.

Tax Filing Process

The process involves detailing all your income sources, such as wages, investment gains, rental income, and more. Deductions, like mortgage interest, charitable contributions, and medical expenses, are then subtracted from your total income. This provides your adjusted taxable income. You then apply to this to determine your tax liability and any refunds you might be entitled to.

Complex vs. Simple Tax Filing

While the simplest tax returns might just cover pay from one job and minimal deductions, complex returns encompass multiple investments, businesses, and extensive deductions, requiring a more detailed documentation.

Why Go Beyond the Minimum?

Even if you have no additional tax liability, there can be financial benefits in filing. For example, if you have charitable contributions that can reduce your taxes, but you are short on time to gather the necessary paperwork, it might make sense to file and receive the tax savings without the additional hassle.

In conclusion, filing taxes is an essential part of managing your finances, and understanding your responsibilities can help you better navigate the process. Whether your income is minimal or substantial, it is important to ensure you file appropriately and take advantage of all your entitlements.