Filing a U.S. tax return, even with income below IRS thresholds, has vital benefits. Eligibility for tax credits and refunds, safeguarding Social Security benefits, compliance with tax laws, establishing a tax history for future benefits, claiming foreign tax credits, and meeting deadlines for Form 2555 are reasons to file. Additionally, it serves as proof of compliance and aids in citizenship renunciation. Rules change, so consult IRS guidelines or a tax professional for accurate filing obligations based on individual circumstances.
Filing a U.S. tax return (Form 1040), even when your income is below the annual IRS threshold, can be important for several reasons:
You may be eligible for tax credits or deductions that could result in a tax refund, even if you earned income below the threshold. For example, if you qualify for the Earned Income Tax Credit (EITC) or the Child Tax Credit, you could receive a refund even if you owe no income tax.
Filing a tax return can help ensure that you receive your Social Security benefits or other government assistance programs correctly. Your reported income on your tax return can impact the calculation of certain benefits.
Filing a tax return ensures that you are in compliance with U.S. tax laws. It provides a record of your income, which may be required for various purposes, such as applying for a mortgage, student loans, or other financial transactions.
Even if you don’t owe taxes now, filing a return establishes a tax history. This can be beneficial in the future if your financial situation changes, and you become eligible for tax deductions or credits.
If you are a U.S. citizen or resident living abroad and you paid taxes to a foreign country, you may be eligible for foreign tax credits that can offset your U.S. tax liability. Filing a U.S. tax return is necessary to claim these credits.
You have a three-year window from the due date of your return to submit Form 2555 and qualify for the Foreign Earned Income Exclusion. Failure to do so within this timeframe means forfeiting the opportunity to claim the exclusion. If you have been in compliance and haven’t filed for several years, you may receive a notification from the IRS inquiring about the missing tax return once the three-year period has passed.
You are contemplating renouncing your U.S. citizenship. While filing for the past 5 tax years is mandatory when your income exceeded the annual thresholds, it is strongly advisable even if it did not, as this helps preempt any inquiries from the IRS about unreported years later on.
It’s important to note that the specific rules and requirements for filing a tax return can change, so it’s advisable to check the latest IRS guidelines or consult with a tax professional to determine your filing obligations based on your individual circumstances.
Filing a tax return can have benefits beyond just meeting the IRS threshold, so it’s worth considering even if your income is low.
We used to have a lot of questions and we can imagine that you do too. Many of the questions we had, have been posted to our knowledge centre. Examples would be:
You can always call us for a consult (free of charge) or to talk to a U.S. tax specialist.