We do have a voluntary system of taxation in the United States. We voluntarily report our annual income received and we voluntarily pay the amount due. However, the word “voluntary” in this sense does not mean that it is not required. The Internal Revenue Code establishes that filing a tax return is required. The voluntary nature of the filing is that we do it ourselves. The government, generally, does not prepare and file tax returns for us.

There are some people and groups who argue that requiring us to file a tax return is unconstitutional and who advocate not filing a tax return or filing grossly incorrect tax returns. The IRS takes these types of activities very seriously and has a Frivolous Return Program that addresses these types of taxpayers’ claims. This department will assess large penalties such as:

These penalties are in addition to the late filing and late payment penalties that the IRS normally charges if appropriate. So, if you feel that the filing of a tax return is unconstitutional, then it is ok to feel that way, but file your tax return and file it correctly.

We are legally required to file tax returns if our gross income is above a certain threshold and not filing a tax return can be subject to civil and criminal penalties.

*If you have net self-employment income of over $400, then you are required to file a tax return. 

What does net income of $400 mean? 

Does it mean that if you have a net loss, that you don’t have to file a tax return? So, for instance, if you had revenue of $100,000 and expenses of $110,000 for a net loss of $10,000 do you still have to file a tax return? Yes! You must tell the IRS what expenses you have or else they may prepare a tax return for you with zero expenses. Also, you will want to file a tax return so you can use that loss to offset income in a future year, or a previous year, if appropriate. 

It is best to file all tax returns accurately. The under-reporting of income for self-employed people can have unforeseen consequences such as the reduction of future Social Security income and the inability to get loans. A self-employed person must file a tax return in order for the Social Security Administration to know that the person has income and therefore give them credit for that income. If no return is filed, then the income is not reported to the Social Security Administration and the person does not get credit for the income. 

Also, tax returns are normally required when getting loans. i.e. mortgage loan, school loans, etc.

It is best to file tax returns accurately and to use legal methods provided by the IRS to reduce annual tax debt.

Don’t include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2019, or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly).

 

Essentially, for Social Security recipients, if your total income is more than $25,000 for an individual or $32,000 for a married couple filing jointly, you must pay income taxes on a portion of your Social Security benefits. Below those thresholds, your benefits are not taxed. 

Also, you may want to file a tax return even if you do not meet the thresholds listed above because there are credits that are available only if you file a tax return.

Call IRS Tax Fighters today at 281-962-0070 for your tax preparation needs. We resolve and prevent tax problems with the ultimate goal of helping you increase your wealth, move toward financial freedom, and reduce your annual tax debt.