On Filing a Tax Return ** Think First **

These thoughts apply as much to tax professionals as they do to taxpayers – so please share my thoughts with your clients, staff and peers:

“Many tax preparers make a quick assessment of a taxpayer’s NEED to file a tax return prior to actually preparing the return. Taxpayers may weigh the NEED to file a return with the COST to file a return, and then decide to forego the cost.

Taxpayer’s should consider more than just the NEED to file a return. In filing the ‘not required’ tax return, the taxpayer may receive a refund of taxes withheld from their payroll. If the taxpayer lives in a state with income tax, they may receive two refunds – one federal and one state. If the taxpayer lives in a county/city with income tax, they may receive three refunds – one federal, one state, one county/city.

In addition to receiving a refund of tax withheld, the taxpayer – and tax preparer – may wish to consider eligibility for one of the many refundable tax credits. A taxpayer with no NEED to file a return has low AGI – but they may be eligible to receive a sizeable, refundable Earned Income Credit. During 2009 and 2010 the taxpayer with no NEED to file a return may have been eligible to receive an Economic Stimulus Payment, Recovery Rebate or Making Work Pay credit – all refundable. For example, we saw this in 2009 with taxpayers’ whose only income was non‐taxable Social Security.

Before considering to not file a tax return, THINK FIRST about whether or not your client might be eligible for a refundable credit, or eligible for a refund of withholdings against their payroll. While your taxpayer may have no NEED to file a return, there may be a financial benefit to file anyway.

Also, THINK FIRST when reviewing your client list at the beginning of each season. You may have a client who has not filed a tax return in many years because there was both no NEED to file a return and no financial benefit either. But as we saw in 2009 with the Economic Stimulus Payment and Recovery Rebate, your taxpayer may become eligible for a refund based upon new legislation.    🙂    “

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