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In 2000 I was going through a divorce and tried to stay out of my house as much as I could. One thing that I did to occupy time was to sign up to work for a national tax preparer and I did over 300 returns that season.
One Saturday an elderly woman came in, sat down at my desk, and gave me an envelope filled with her tax documents. She had prepared everything in a meticulous fashion and when I was finished entering the data into the computer she was very disappointed with the result. She did not have to file a return.
She was surprised to learn that not everyone who has income needs to file a return. Each year, hundreds of thousands of people needlessly file a federal tax return, so perhaps it will be helpful to go over a few basics about how the minimum threshold is determined. After all, we don’t need to waste money paying for a return and have the IRS waste time checking it.
The Filing Status Determines the Standard Deduction
All taxpayers, unless they are the dependent of another person, are entitled to a standard deduction on their return. This amount is determined by the filing status chosen which can be one of the following:
Filing Status and Deduction:
Married Filing Separately $5,700
Married Filing Jointly $11,400
Qualifying Widow(er) $11,400
Head of Household $8,400
Tax filers age 65 or older you can claim an additional $1,100 or $1,400 if they are Single or Head of Household. If they are blind they are also entitled to these additional deductions.
Each person filing on a tax return is entitled to a personal exemption which for 2010 is $3,700. For the purposes of filing requirements the number of dependents is not taken into account.
Add Everything Up
The government is effectively giving everyone a certain amount of income free of federal tax and they do not want you to file a return unless the amount of your income is above that number. The amount is calculated by taking the applicable standard deduction and adding to it the personal exemption.
A Head of Household would not have to file a return unless their income was more than $8,400 plus $3,700 or $12,100. If they were 65 or older, or blind, then that number would be increased by $1,400. If they were 65 years old and blind then the increase is $2,800 which means that they do not need to file unless the income is greater than $14,900.
To all general rules there are exceptions and you may still want to file a return if your income is below the base limits under certain conditions. If you had any taxes withheld or are entitled to some of the credits such as Earned Income credit or Make Work Pay credit it might be worth your time and effort to file since you would be getting a refund.
More from this contributor:
Steps to Avoid Probate May Not Save Your Money
Divorce: American Style