How much do I need to make to file taxes?

[mjhrpgiv]

Entering information into HR Block software for my son. He made $7500 and it says he owes roughly $1000. When I look online it seems he doesn't even need to file taxes unless he makes more than $10,400.

Confused?

 

[Just Blue]

Entering information into HR Block software for my son. He made $7500 and it says he owes roughly $1000. When I look online it seems he doesn't even need to file taxes unless he makes more than $10,400.

Confused?

What State? How old is your son?

 

[mjhrpgiv]

PA and 21 years old.

 

[Taxing Matters]

Entering information into HR Block software for my son. He made $7500 and it says he owes roughly $1000. When I look online it seems he doesn't even need to file taxes unless he makes more than $10,400.

Confused?

Most of the sites that give the information on what the income in needed to file a federal income tax return assume two things: (1) the taxpayer is not the dependent of someone else and (2) the taxpayer is not self-employed. If both those things are true and your son is single then he would indeed not have to file unless his income was at least $10,400. But if either one of those two situations applies to your son then the income he needed to have to trigger a filing requirement will be less. My guess is that you are eligible to claim your son as your dependent, which in turn means he cannot take the personal exemption for himself and as a result the income he needs to be required to file is less. See IRS publication 501 for more information on the filing requirements and on the exemption for dependents. Publication 929, which discusses tax rules for dependents, may also be helpful.

 

[mjhrpgiv]

Ah and he is self-employed. All his income in 1099.
Thank you.

 

[Taxing Matters]

Ah and he is self-employed. All his income in 1099.
Thank you.

Well, that would be it. If you are self-employed and have net income from the self-employment of at least $400 you must file a federal income tax return even if your total income as a single person is under $10,400. The reason for that is that self-employed persons not only owe income tax but they also owe self-employment tax, which is how self-employed persons pay their FICA (Social Security and Medicare) taxes. While that is a separate tax, the IRS includes it on the Form 1040 to make things easier. Very likely much of that $1,000 he owes is self-employment tax. The good news is that starts building him credit with SSA for Social Security and Medicare benefits in the future.

 

[mjhrpgiv]

Thanks for all of the quick and detailed answers.

 

[adjusterjack]

Entering information into HR Block software for my son. He made $7500 and it says he owes roughly $1000. When I look online it seems he doesn't even need to file taxes unless he makes more than $10,400.

Confused?

Now that you've revealed that he is self employed those figures look about right when you include self employment tax.

However, you use the phrase "He made $7500." Was that net or gross? Did you factor in any expenses allowable on Schedule C? If he uses his vehicle in his business, that could make a dent in his net income. Equipment and supplies can also help. Even part of his phone and internet service costs might be an allowable expense.

 

[mjhrpgiv]

That was the total of his 1099's. I did deduct his liability insurance. I could go back and add a few things possibly like software and monthly fees associated with the business.

 

[LdiJ]

That was the total of his 1099's. I did deduct his liability insurance. I could go back and add a few things possibly like software and monthly fees associated with the business.

Its kind of a catch 22. You may not list expenses that are not valid because that would be cheating. However, you also must list all valid expenses because otherwise your son would receive more Social Security credits than he was legally entitled to receive. So, DO list all of the valid expenses of his self employment but do not list anything that is not truly valid.

 

[Taxing Matters]

However, you also must list all valid expenses because otherwise your son would receive more Social Security credits than he was legally entitled to receive.

Have you any citation to authority that says a person MUST claim all the business deductions he or she is entitled to claim and that there is some kind of penalty for failing to do so? I have never seen such a rule nor have I ever seen the IRS or SSA raise that as an issue.

 

[mjhrpgiv]

The expenses I'll claim are valid. Software and subscriptions (dropbox, vimeo, square space) all necessary to operate his business.

 

[LdiJ]

Have you any citation to authority that says a person MUST claim all the business deductions he or she is entitled to claim and that there is some kind of penalty for failing to do so? I have never seen such a rule nor have I ever seen the IRS or SSA raise that as an issue.

I would have agreed with you up until about 10 years ago. However, in the IRS continuing education seminars over the last 10 years this has been a major issue addressed. Its always been addressed on the issue of a person receiving Social Security credits that they might not otherwise have been eligible to receive if they do not claim all of their expenses.

I will admit however, that I have not seen anyone's Schedule C actually get challenged on the basis of missing deductions. At the same time, the only client I even had that showed any interest in deducting less expenses than actually existed was much more than 10 years back and that client wanted to do it for SS credit purposes.

 

[Taxing Matters]

I will admit however, that I have not seen anyone's Schedule C actually get challenged on the basis of missing deductions.

And that is because (1) there is no requirement in the Code that a person take all the deductions to which they are entitled, so should the IRS make an adjustment on that basis it would be a slam dunk loss for the IRS at the Tax Court and (2) the IRS is generally not in the business of ginning up refunds. The IRS is mainly in the business of tracking down additional revenue to collect. I don't know what the IRS CPEs you've attended have said on the issue, but I'll bet they have never said that there is a legal requirement to take all the deductions to which you are entitled or that there is any penalty for failing to do so. At worst, SSA might challenge the earnings record for the taxpayer, but SSA rarely would have the records to do that, or the resources.

 

[LdiJ]

And that is because (1) there is no requirement in the Code that a person take all the deductions to which they are entitled, so should the IRS make an adjustment on that basis it would be a slam dunk loss for the IRS at the Tax Court and (2) the IRS is generally not in the business of ginning up refunds. The IRS is mainly in the business of tracking down additional revenue to collect. I don't know what the IRS CPEs you've attended have said on the issue, but I'll bet they have never said that there is a legal requirement to take all the deductions to which you are entitled or that there is any penalty for failing to do so. At worst, SSA might challenge the earnings record for the taxpayer, but SSA rarely would have the records to do that, or the resources.

TM, I am stating flat out that on multiple years in the last 10 years (if not all years) this issue has been specifically discussed...and it has been stated that all valid deductions must be taken for the purposes of Social Security Credits. The term "Social Security Credit Fraud" has even been used on occasion by some presenters.