It is difficult to make a generalization about what income is taxable and what is not. So how do you determine whether or not you need to file a tax return? One factor is whether or not you meet the threshold for the requirement for filing a tax return. However, this threshold may vary depending on your age, your filing status and your gross income. To determine whether or not you need to file a tax return, it is best to consult a tax professional.
Sometimes even when you don’t have a legal obligation to file a tax return, it can be beneficial to do so. For example, many people who don’t normally file did not receive their Economic Impact Payments (aka “the stimulus checks”) since the IRS did not have their information. In order to receive these payments, individuals had to file a tax return to provide their contact information to the IRS.
If you earn income, even if it is below the filing threshold, it can be beneficial to file a return because you may be eligible for other credits, which means more money in your pocket. These credits include the Earned Income Tax Credit (EITC) or the Child Tax Credit (CTC). Another benefit is that the EITC is a refundable tax credit. This means that if your credit exceeds your tax due, then you still get some money back. Plus, if you are under the filing threshold and paid taxes, you may be eligible to get a refund of those taxes paid.
To determine whether or not you should file a tax return, you should consult a reputable tax professional.
While it may seem very convenient to go to the tax shop that just popped up in your neighborhood for tax season, you should be very careful about who you trust with your tax returns. There are many fraudulent tax return preparers who will promise you a “good” refund. Fraudulent tax return preparers who promise big refunds may file returns with inaccurate information, just to get the numbers to work out. However, you, as the taxpayer, have the ultimate responsibility for what is reported on your tax return.
When you sign your return, you are signing it under “penalty of perjury,” which means that you swear that everything is true. If the tax return is ever audited or questioned by the IRS, it will be YOU that is questioned, and not your tax return preparer. In fact, if you had your return prepared by a pop-up shop, then that return preparer may not even be around to ask questions to.
Reputable tax return preparers don’t disappear after tax season. One way to find a reputable tax return preparer is to look for a list of those certified by the IRS. This information can be found on the IRS website: www.IRS.gov. Another option is to consult a VITA site. VITA stands for Volunteer Income Tax Assistance. This means that the organization has been recognized by the IRS, and all of their tax return preparers have had to pass an exam given by the IRS in order to be able to prepare tax returns.
One local VITA site is the CASH Campaign of Maryland 410-234-8008, which offers free tax return preparation for households that earn less than $56,000. The American Association of Retired Persons (AARP) also offers free tax return preparation. Visit www.aarp.org.
After a tax return is filed, sometimes a problem can arise. A taxpayer may owe a balance and may be unable to pay that balance, or the return may be audited, and the IRS (or the Maryland Comptroller) may request additional information. It is oftentimes scary and difficult to deal with the IRS or the Comptroller alone. But where can a taxpayer look for help? One option is to seek assistance from a Low-Income Taxpayer Clinic (LITC). An LITC is a clinic that is available to assist taxpayers with a variety of income tax issues, including an audit or a collection issue.
Tax season doesn’t need to be difficult. If you choose the right people to help, tax season can be a worry-free experience. And, remember the IRS tax deadline for this year has been moved to May 17, 2021.
Janice Shih is the Low Income Taxpayer Clinic Director at the Maryland Volunteer Lawyers Service (MVLS). MVLS focuses on housing, consumer, family, estate, tax, and criminal record relief issues for Marylanders of limited means. MVLS does assist with tax controversy cases and can be reached at www.mvlslaw.org or 410-547-6537 Monday to Thursday – 9 a.m. to 12 p.m.