Tag: tax-planning

Do I Have to File a Tax Return this Year?

If you are currently retired and living on a small, fixed income or barely making enough money to support your family, you might wonder whether you need to file a tax return this year. The answer is most likely “Yes.”

In 1789, Benjamin Franklin famously said, “In this world, nothing can be said to be certain, except death and taxes.” That has not changed much. Filing a tax return is a requirement of life for nearly every American.

You are required to file a tax return if:

  1. Your gross income was greater than the applicable standard deduction for your filing status.
  2. You had self-employment income of $400 or more.
  3. You owe taxes.

Keep in mind that gross income is not just income earned from working a job. It includes social security and retirement income, IRA distributions, interest and dividends, capital gains, and any other sources of income you might have.

Let’s look at the example of a 90-year-old widow whose social security and retirement benefits total $23,400 annually. Additionally, she received $157 in interest on her savings and a dividend of $384 from stocks. Therefore, her gross income is $23,941. This amount exceeds her standard deduction of $15,700. Consequently, she must file a tax return for the year. It is likely that she had taxes withheld on these incomes and that she is entitled to a refund. If so, filing is not only required, but it is beneficial.

Even if you are not required to file a tax return, you will want to file if (1) you are due a refund on taxes withheld or (2) if you are entitled to claim a tax credit. The most common tax credits are:

  • Earned income tax credit
  • Child tax credit
  • American Opportunity Tax Credit
  • Credit for Federal Tax on Fuels
  • Premium Tax Credit
  • Health Coverage Tax Credit
  • Credits for Sick and Family Leave
  • Child and Dependent Care Credit

If you are still unsure whether you have to file a tax return, you can use the IRS’s Interactive Tax Assistance (ITA). It has an Interview Tool to help you figure it out. The interview is estimated to take 12 minutes to complete. Remember that the tool is only as good as the answers you provide. Access the interview tool here: https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return

Free Tax Filing Options

Did you know you may be eligible to file your taxes for free? Several free filing options are available, depending on your age, state of residency, and income. You can find a free tax filing option if your Adjusted Gross Income (AGI) is $79,000 or less.

In order to move forward, you will need to determine your AGI for 2023. This information will help us explore the best options available and make informed decisions. Let’s take a moment to calculate your AGI so we can confidently move ahead.

Step 1:  Calculate your total income by adding up all sources of income you receive. Typical forms of income may include:

  • Wages
  • Retirement income
    • IRA distributions
    • Dividends
  • Capital gains
  • business profits
  • interest earned
  • Investment income 
  • Social security
  • Tips
  • Rental income
  • Dependent care benefits
  • Employer-provided adoption benefits

  • Medicaid waiver payments

    Step 2:  Sum up the adjustments made to your income. These adjustments may include: 
  • Half of the self-employment taxes you paid
  • Self-employment health insurance premiums
  • Applicable donations to IRAs
  • Student loan interest
  • Unreimbursed educator expenses

Your AGI is your total income minus your total adjustments.

IRS File Free

The IRS has collaborated with several tax software providers to offer free access to those who meet the requirements. Each provider has its own set of criteria for eligibility. Please visit the provider’s website to determine if their free service is available in your state. Below is a list of the IRS’s trusted partners and a link to their websites.

1040 NOWAGI < $68,000Any agehttps://www.1040now.net
Drake$17k<AGI<$68kAny agehttps://www.1040.com/
EzTaxReturnAGI < $79,000Any agehttps://www.eztaxreturn.com/
FileYourTaxes$8.5k<AGI<$79k< 65https://www.fileyourtaxes.com/
On-Line TaxesAGI < $45,000Any agehttps://www.olt.com
Tax ActAGI < $79,00020 – 54https://www.taxact.com/
Tax HawkAGI < $45,000Any agehttps://www.taxhawk.com
Tax SlayerAGI < $44,000Any agehttps://www.taxslayer.com/
Comparison Free Tax Filing Options

The IRS has a tool to help you determine which of these trusted partners is right for you: https://apps.irs.gov/app/freeFile/general/

  1. Go to IRS.gov
  2. Click “File your taxes for free.”
  3. Select “Explore Free Guided Tax Software”
  4. If you are a first-time free tax filer, select “Find Your Trusted Partner(s)” to find the right preparer for your situation. Or you may browse all the IRS-trusted partners.
  5. Once you use IRS File Free, you will receive an email from the company you used with a link to file for free next year.

Check back next Tuesday for another tax tip to help you decide whether to itemize your deduction or take the standard deduction.