Not all people are required to file a tax return. Specifically, if your annual income does not exceed a certain minimum amount, you are not required to file a federal tax return. The exact minimum income threshold depends on a number of factors, such as your age, type of income, and filings status (e.g. single, married, divorced, etc.).
As of 2019, you do not have to file for taxes if all of the following four are true:
- You are under the age of 65
- You are single
- There are no special circumstances you need to file (e.g. self-employment)
- You earned less than $12,000 the previous year
Do You Need To Pay Taxes?
There are factors that determine whether you need to pay taxes or not. These are the following:
1. Filing Status
Your filing status determines what your standard deduction under the tax code is. There are 5 filing statuses recognized by the IRS.
Your filing status is single if you are not married and do not fall under any other special filing status. The lowest tax bracket for single filing is $9,076-$36,900 which is taxed at a 15% rate.
The highest income bracket for single filers is $406,751 at 39.6%. Single filers can claim up to a $12,400 deduction.
Head of household
Heads of households must be unmarried, have paid more than half the cost of maintaining your home for the last year, and have one or more dependents.
The standard head of household deduction is $18,650. The lowest marginal tax bracket for heads of a household is 10% for people making between $0 and $18,000.
Married filing jointly
Married couples can file their taxes on the same return. Married filing jointly is normally the option when one spouse makes a substantial portion of the income.
Those who are married filing jointly can claim up to $24,400 in deductions and the lowest tax bracket is 10% for those making between $0 and $19,750.
Married filing separately
Married couples can also file separate tax returns. Married filing separately taxpayers only receive the standard deduction of $12,400.
The lowest tax bracket for married filing separately taxpayers is 10% for earned income between $0 and $9,700.
Qualifying widow(er) with dependent child
The qualifying widow filing status essentially allows widowed spouses to file married filing jointly tax returns and take advantage of those benefits.
Qualifying widow status taxpayers can claim the standard deductions for married filing jointly status and claim any benefits for qualifying dependents.
Your overall tax liability is also determined by whether you have any dependents.
A dependent is anyone who receives over half their total financial report from another person and has not filed a joint tax return. Children generally qualify as dependents.
Claiming dependents on your tax returns may qualify you for certain tax deductions. The exact deduction amounts change year-to-year.
As of 2018, you can qualify for a tax credit up to $2,000 per child and up to $500 for other qualifying dependents.
Dependents also have to file tax returns as well. Those who are claimed as dependents on another’s tax return must file and individual tax return if any of the following are true:
- They have more than $1,110 of earned income
- They have an earned income greater than $12,200
- Their gross income exceeds a predefined threshold
3. Other Situations
Your filing status and income determine the majority of your tax burden, but other things like capital gains from investments and dividend payments must be taxed too. Those who have income derived from investments or dividends need to fill out separate tax forms.
The exact tax rate depends on if the capital gains are short-term or long term and if the dividends are qualified or non-qualified.
Why You Should Still File Your Taxes
Even if you are not required to file your taxes, it is still a good idea to do so. If you made any money from a job in the past year, the only way you can get a tax return is by filing.
Filing taxes even if you are not required can qualify you for earned income tax-credits which can reduce any taxes you own or use as your refund.
In other words, there are a lot of nice benefits you can get from filing your taxes even if you are not required by law to do so. Keep in mind that even if you don’t have to file a federal tax return you may still have to file a state tax return.
When Do Small Businesses Pay Taxes?
In general, you can earn $400 in excess of expenses for your business before you are required to pay taxes. Any money gained after $400 will be subject to a self-employment tax. So that means that your business could earn thousands of dollars but not be required to pay taxes.
The expenses to earn the income could be greater than the income earned. In that case, you would not have to pay any taxes on income earned by your business.
How Much Do You Have To Make To Not Pay Taxes?
As of 2020, you do not have to file taxes if you are single and your earned income is below $12,400. So if you only earned $5,000 in 2019, you would not have to file your taxes.
Keep in mind that this only considers earned income. Unearned income like from rental payments or investments can still be subjected to taxation, even if it is below $12,400.
If your income consists of both earned and unearned income, you will need to do some math to figure out your overall tax liability.
How to Reduce Taxable Income
The easiest and most straightforward way to reduce your overall taxable income is to maximize your retirement savings during the year.
Retirement funds are allowed to grow tax-free and any contributions can be deducted from your taxable income up to a limit. So in other words, the more you put into your retirement savings account during the year, the less income tax you have to pay.
Tax-loss harvesting is a way to reduce taxes on your investment gains. Tax-loss harvesting involves selling off losing investments to lower your overall tax burden.
Also, if you are a low-income earner and self-employed either part-time or full time you can qualify for special tax deductions.