Filling out your tax returns can be a stressful process. Everyone who has ever done it will tell you that. So, most people try their best not to bother with the filing.
It also helps that some people don’t even have income levels that qualify for tax return filings since they won’t owe any taxes.
With all of this, it is a question of why anyone will want to make tax return filings in the first place. Well, if you need some convincing, here are some reasons why you will want to make your tax return filings – even if you don’t have to.
5 Reasons Why You Should Do A Tax Return
1. It is usually mandatory
Even if your income level doesn’t yet qualify for a tax return filing, you might still want to file the returns voluntarily. You will need to provide proof of tax returns for at least three years to register immovable properties like houses and more in many states.
If you intend to register such a transaction, you will need to provide your tax returns. Making your filings will save you a great deal of stress.
2. Reduce the possibility of identity theft
Identity theft is currently one of the most famous crimes in the world. In the United States, however, one of the ways that identity thieves can strike is through tax returns.
The process is relatively easy – identity thieves can steal Social Security Numbers (SSNs) and use them to make fake tax return filings. Then, they get your tax refunds on your behalf.
When you file for your returns eventually, you find that you don’t have any to collect. There have been several examples of this problem happening in the past, and while the Internal Revenue Service (IRS) has tried to keep them at bay, they continue to occur.
Tax season is especially busy for identity thieves. When someone gets a hold of your SSN and fraudulently claims a refund, the IRS system will reject your returns when trying to make an electronic filing. This is because the computer will flag your SSN as a duplicate as someone already used it to file a return.
By filing your tax return, you can ensure that this doesn’t happen to you. Many people who fail to do so might want to let their tax refunds accumulate over time, only to find out that someone already used their SSN to get a refund, and they will be left with nothing. If you want to avoid such a problem, you will need to file your tax returns and do so as easily as possible.
3. Getting access to critical financial information
If you’re getting ready for a significant financial move (such as going back to college or purchasing a house), you could get some essential information by filing your tax returns.
For instance, college students can use the details in Form 1040 to apply for student loans and other forms of financial aid. Simultaneously, people looking to get homes will most likely need to show their completed tax returns as proof of their financial stability and income.
Many of these requirements usually come beforehand, so you should know how you will provide the information needed. Another reason why most experts advocate for filing your tax returns easily is so that you can get these paperwork and financial details much faster.
4. The Earned Income Tax Credit
Essentially, the Earned Income Tax Credit (EITC) is a provision for people in lower-income jobs. If you qualify for the tax credit, you will want to file a tax return.
Note that the EITC is refundable. So, if it is worth more than the taxes you owe, the IRS could send you a refund check to cover the difference. Take 2020, for example. The maximum EITC ranged from $538 to $6,660, depending on income and the number of children. So, you can see that it is worth the hassle to complete your tax returns if you are eligible for this credit.
Several other rules go into determining whether you qualify for this credit. However, you could also check an online tool from the IRS to see whether you are eligible. You could also speak to a qualified tax advisor for more information.
5. The Premium Tax Credit
The premium tax credit is a credit facility that helps people pay for insurance they purchased via the health insurance marketplace. It is available for people whose household income is between 100 and 400 percent of the federal poverty level.
The government has put the premium tax credit amount on a sliding scale, so people who earn less will get larger credits.
You can calculate an estimated credit when you go to a marketplace like healthcare.gov and purchase insurance. At that point, you could have your credit paid in advance directly to your insurance company to reduce your monthly premium, or you could get all the credit benefits when you make your tax return filing for the year.
Note that you will still need to reconcile your payable amount in advance with the actual credit when you file your tax return, even if you make advance payments to the insurer. So, at the end of the day, you will need to complete Form 8962 and attach it to your tax returns.
Since the premium tax credit is refundable, you will get a refund if the amount of credit exceeds the tax you owe and you file a tax refund. If you don’t owe any taxes, you will be able to get the full amount of credit as a refund.
You May Like To Read:
- How To Avoid Paying Tax On Your Pension
- 4 Reasons Why Estate Tax Planning is Essential
- 11 Types of Tax Incentives & How They Differ in Their Functionality
Author: Thomas Wiggins