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No income and living off savings, do I need to file taxes?
Old 10-17-2011, 06:59 AM   #1
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No income and living off savings, do I need to file taxes?

I tried doing a search on the forums but I don't think there's anything similar, but if I missed it please excuse me!

And I'm actually asking on behalf of my mother, since she's not very computer literate.

Basically I'm wondering if she has to file taxes for this year based on her current situation:
  1. She took an early retirement last year and so for 2011 has had no salary
  2. She's still too young to receive SS or any 401K/IRA distributions
  3. She has some stocks that might pay small dividends and also savings interest income but all of that should be under $2000
  4. This year she hasn't had any financial movements such as selling stocks or stuff like that

And of course if I need to seek the help of a CPA I will do so as well, but I just wanted to get a general idea first.

From my understanding, even though she has unearned interest income and dividends, the fact that it's under the $9,350 (in at least 2010) she should probably not need to file any taxes in 2011.

Is that right or am I missing anything? Thanks in advance
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Old 10-17-2011, 07:06 AM   #2
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The more operative question in a case like this would be would she have reason to want to file such as to get back any federal or state income tax withheld. Provided that doesn't apply to her, I don't believe she "has to" file a return given those conditions.
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Old 10-17-2011, 07:11 AM   #3
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^ Thanks slazenger!

I don't believe she has any reason to but you bring up a good point and it's something I should double-check.
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Old 10-17-2011, 07:11 AM   #4
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spend a couple of bucks on a CPA.......you don't want to get this wrong.
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Old 10-17-2011, 07:12 AM   #5
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Tax Tips: Do I Have To File a Tax Return? - YouTube

http://www.irs.gov/pub/irs-pdf/p501.pdf
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Old 10-17-2011, 07:24 AM   #6
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emcat, welcome to the forum. Please feel free to stop by here and tell us a little about yourself.
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Old 10-17-2011, 07:25 AM   #7
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spend a couple of bucks on a CPA.......you don't want to get this wrong.
No need for that. She can go to a TaxAide location in February and they will tell her whether she should file. They can tell if a refund is possible either due to witholding, estimated tax payments or refundable credits.

This service is free for most low-middle income taxpayers.
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Old 10-17-2011, 07:47 AM   #8
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The more operative question in a case like this would be would she have reason to want to file such as to get back any federal or state income tax withheld. Provided that doesn't apply to her, I don't believe she "has to" file a return given those conditions.
As a related issue to this, which may or may not be relevant to the OP's question, I can tell you something I discovered with my dad's tax returns (he is 80) earlier this year.

Despite a gross income slightly over $20k, he had no federal or state income tax liability because some of his income is taxed lightly, then he has enough exemptions, deductions, and credits to reduce his taxable income to zero.

On the federal side, he had some federal income tax withheld from his IRA distribution per the usual practice of his financial advisor at Ameriprise. The filing of his income tax return was simply to recover those taxes paid. I mentioned to his advisor that she should stop withholding taxes from his IRA distribution because his IT liability is usually zero. She said she would.

On the state side, even with no state income taxes withheld, he still had no IT liability, as our state more lightly taxes more of his income. He has had no state IT liability for many years but still files a return. His accountant gives him a lower rate because he is elderly but I wonder if he needs to pay for this service if someone else (maybe me) could do it for free.
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Old 10-17-2011, 08:04 AM   #9
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My two cents, if her income was less than $9350 and she is single she doesn't have to file. If she recieved any 1099s or W-2s and tax was withheld she should file to get a possible refund. That said it may be wise to file regardless as the video points out as she may be eligible for some refundable credits. In addition, many times a tax return is used as a matter of record if there were to be some type of stimulus payment later down the road. As simple as her tax situation is go to an H&R Block office and have them run the numbers, it shouldn't cost anything unless she wanted to file. Even then if it is a simple short (1040EZ) form they are doing them for free for a certain time period during filing season.
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Old 10-17-2011, 09:12 AM   #10
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Something else to consider, if her tax is that low this may be an opportunity to convert some traditional IRA assets into a Roth IRA. Could even sell some taxable stocks and not have to pay CG tax and 'reset' the value of those stocks to possibly save taxes in the future.
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Old 10-17-2011, 09:18 AM   #11
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I do the taxes for my MIL in Michigan and I can file for free using TurboTax on line through the treasury department site. She actually gets a refund every year due to her real estate taxes. So, you may be able to do her taxes essentially for free and may find some givebacks that you had not thought of.
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Old 10-17-2011, 09:54 AM   #12
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Originally Posted by travelover View Post
I do the taxes for my MIL in Michigan and I can file for free using TurboTax on line through the treasury department site. She actually gets a refund every year due to her real estate taxes. So, you may be able to do her taxes essentially for free and may find some givebacks that you had not thought of.
+1
With all the assistance out there, you should not have to spend a dime to complete this return.
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Old 10-17-2011, 10:32 AM   #13
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It was unclear to me how much her pension income was. Pension income is taxable income, so you'll need to look at the 1099 r and add that income to her interest and dividends. Check for any witholding .
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Old 10-17-2011, 10:36 AM   #14
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also if she has no income over the exemption amount. ( ie no pension )and you provide more than 1/2 of her support , she may possibly be your dependent.
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Old 10-17-2011, 10:59 AM   #15
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From page 8 of the 1040 instructions:
http://www.irs.gov/pub/irs-pdf/i1040gi.pdf

"
Chart A—For Most People
AND at the end of 2010 THEN file a return if your gross
IF your filing status is . . . you were* . . . income** was at least . . .
Single under 65 $9,350
65 or older $10,750

under 65 (both spouses) $18,700
Married filing jointly*** 65 or older (one spouse) $19,800
65 or older (both spouses) $20,900
Married filing separately (see page 13) any age $3,650
Head of household (see page 13) under 65 $12,050
65 or older $13,450
Qualifying widow(er) with dependent child under 65 $15,050
(see page 13) 65 or older $16,150

*If you were born on January 1, 1946, you are considered to be age 65 at the end of 2010.
**
Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax,
including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of
it). Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any
time in 2010 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). If (a) or (b) applies, see the instructions for lines 20a and 20b to figure the taxable part of
social security benefits you must include in gross income.
***If you did not live with your spouse at the end of 2010 (or on the date your spouse died) and your gross income was at least
$3,650, you must file a return regardless of your age.
"


So it looks like with less than $9,350 she would be in the clear, as long as she doesn't need to file to get a refundable credit or something like that.

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Old 10-17-2011, 11:29 AM   #16
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I think it would be wise to file a return even if it isn't required. Some states have property tax exemptions or deferrals for low income seniors or she may want to take advantage of rental programs for low income seniors, all require copies of tax returns. IRS often sends notices to individuals where they have received a 1099 that they can't match to a tax return. It is so much easier to submit a no tax due return than deal with inquiry letters.
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Old 10-17-2011, 11:29 AM   #17
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Quote:
Originally Posted by travelover View Post
I do the taxes for my MIL in Michigan and I can file for free using TurboTax on line through the treasury department site. She actually gets a refund every year due to her real estate taxes. So, you may be able to do her taxes essentially for free and may find some givebacks that you had not thought of.
Yes, this.

Even if she doesn't owe anything, what is the benefit to not filing? Not spending the hour or so it will take to use TurboTax?
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Old 10-17-2011, 12:00 PM   #18
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Something else to consider, if her tax is that low this may be an opportunity to convert some traditional IRA assets into a Roth IRA. Could even sell some taxable stocks and not have to pay CG tax and 'reset' the value of those stocks to possibly save taxes in the future.
+1.
Seems like a great opportunity to convert some of that 401K/IRA. At the very least I'd convert what can be done tax free, and if there is a lot in the 401K/IRA that will be withdrawn (and taxed) later, she might want to let some of it be taxed at 15% now.
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Old 10-17-2011, 09:40 PM   #19
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Quote:
Originally Posted by Brat View Post
I think it would be wise to file a return even if it isn't required.
I learned something new today. I'd always assumed that a federal return had to be filed every year just to acknowledge the 1099s that everyone else sent in with your tax ID number on them. I'm surprised to read that there might be times when a federal return isn't required.

Of course those times probably don't coincide with being able to skip state & locality filings...
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Old 10-18-2011, 12:35 AM   #20
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I would suggest the same.
Quote:
Originally Posted by Brat View Post
I think it would be wise to file a return even if it isn't required.
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