Bad Tax Advice!

Bad Tax Advice: “My tax accountant told me that if you make less then $10k a year you do not have to file taxes.”

Whoops.

In the most basic situation, this may be true, but even when it’s technically true, it may still be Bad Tax Advice.

The IRSs publication does state that for air quotes MOST air quotes taxpayers, you do not need to file if you earned less than $10,150. There are lots of exceptions to this though. If you earned Self-Employment (SE) income of more than $600 in the year you must file. That’s right. And a lot of people don’t know they are self-employed. Did you watch your friend’s two kids in your home a few times a month? You may be self-employed! Did you sew felt woodland creatures and sell them on Etsy? You may be self employed! Did you build a couple of WordPress sites for your friends  for cheap because you coworkers said you were good at it? You may be self-employed! And if you are self employed, you MUST file a tax return if you have $600 or more in SE income in the year. Estimated understatement of tax: $1,500 Federal + $300 Oregon (for a single person, Oregon resident, with $10k in SE profit, plus possible county and local taxes).

What if someone else is claiming you on their taxes? Then that ~$10k above drops down to $6,200 in earned income. If you have un-earned income, like investment income or Tribal per-capita payments, you must file if you have more than $1,000 in unearned income. (LOTS more rules here!) Estimated understatement of tax: $300 Federal + $400 Oregon (based on a dependent with $10,000 of earned W2 income).

Even if you meet the requirements to be exempt from filing a federal return, you may need to file a state return. Which means…you need to file a federal return (since we need that before we can generate a state return)! For Oregon, a single person with regular W2 income, not a dependent, must file a tax return if their gross income is $5,695 for 2013 (most recent year available). So even if you didn’t make enough to have to file a federal return, you start paying taxes sooner in Oregon and need to file with a lower income. Estimated understatement of tax: $400 Oregon.

What about the other direction? What if you determine, after searching through Publication 501 and Oregon Publication 17 1/2,  that you really actually DON’T have to file? That Well Meaning Internet Stranger ™ was right after all? You might WANT to file anyway. If you had any taxes withheld, you must file to get them back. If your income is really that low, you may be eligible for the Earned Income Tax Credit. If you are single with no children, that’s $349 in Federal refunds and $21 in Oregon refunds you miss out on by not filing. If you have a kid a Qualifying Child (more on that distinction later), you miss out on $3,305 in Federal refunds, and even more if you have 2 or 3 Qualifying Children! Estimated cost to you: $370 – $6,511 in Federal and State refunds, plus anything you had withheld.

Want to read about it for yourself? IRS Publication 501 discusses Federal filing requirements; Oregon Pub 17 1/2 is where you will find Oregon filing requirements. Or, you know, talk to your tax person.