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Maximize Benefits: Filing Taxes When It's Optional

Typically, individuals must file a tax return if their income exceeds the standard deduction for their filing status. However, even if filing isn't mandatory, there are compelling reasons to file anyway. Not filing might mean missing out on substantial refundable tax credits and carryover opportunities. In this article, we'll delve into these benefits and examine the requirements and advantages of filing a tax return even when it's technically unnecessary.

The income thresholds for filing returns in 2025 (due in 2026) are as follows:

2025 INDIVIDUAL INCOME TAX RETURN FILING THRESHOLDS

FILING STATUS

UNDER AGE 65

AGE 65 OR OLDER

Single

$15,750

$17,750

Head of Household

$23,625

$25,625

Married, Filing Jointly

$31,500 (if both spouses are under 65)

$33,100 (if one spouse is 65+)
$34,700 (if both are 65+)

Married, Filing Separately

$5 (any age)

$5 (any age)

Qualifying Surviving Spouse

$31,500

$33,100

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Other Filing Requirements: Even if your income is below the standard threshold, you might still need to file if:

  • You earned $400 or more from self-employment.

  • You owe special taxes like the Alternative Minimum Tax.

  • You received health insurance Premium Tax Credit advance payments from a marketplace.

  • You earned church income of $108.28 or more.

  • Social Security or Medicare taxes were uncollected.

  • You owe household employment taxes.

  • You or your spouse received a Health Savings Account distribution.

Dependents: Dependents might need to file if they have:

  • Unearned income (e.g., interest, dividends) over $1,350.

  • Earned income (e.g., wages, tips) over $15,750.

  • Gross income exceeding $1,350 or their earned income plus $450 (up to the standard deduction).

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Potential Missed Opportunities: Choosing not to file might leave significant refunds unclaimed. For instance:

  • Tax Withholding: Withheld federal taxes are refundable if no return is required.

  • Earned Income Tax Credit (EITC): Offers substantial refunds for qualifying low- to moderate-income workers, potentially up to $8,046 in 2025, and is fully refundable.

  • Child Tax Credit (CTC): Up to $2,200 per child with $1,700 refundable, available even if filing isn't mandatory.

  • American Opportunity Tax Credit (AOTC): Up to $2,500 credit for education, with up to $1,000 refundable.

  • Premium Tax Credit: Helps reduce health insurance costs for marketplace plans.

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Carryover Deductions: Even with minimal current-year income, utilizing these deductions by filing can be beneficial:

  1. Net Operating Losses (NOLs): Business losses from previous years can be carried forward up to 20 years.

  2. Charitable Contributions: Excess donations can offset future income for up to five years.

  3. Passive Activity Losses: Losses from passive activities like rentals can offset future similar income.

  4. Capital Losses: Excess losses can be carried over to future years, offsetting future gains.

Additional Considerations:

  1. State Programs Eligibility: Federal filings may impact state tax benefits.

  2. Financial Planning: Consistent filings support future financial activities such as loan applications.

  3. Identity Protection: Filed returns safeguard against fraudulent tax claims in your name.

In summary, the potential refunds from filings that may seem optional, such as the EITC, should not be overlooked. It's crucial to review whether filing might bring financial advantages. For assistance or queries on this matter, get in touch, especially if you haven't filed for past years where claims can still be made.

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