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Do I really need to file a return ?

If you've clicked on this article, you're probably hoping you don't need to file a tax return this year. Obviously, most people do. But if your income was low enough, you may be off the hook. Here's what you need to know.

The General Rules

So how low is low? See the 2006 maximums in the table below. If your income was below that amount, you probably don't need to file a federal return. (Just because you're not required to file a federal Form 1040 doesn't necessarily mean you're also excused from filing state and/or local income tax returns. Check on that before concluding you're entirely in the clear.)

For this purpose, gross income basically means potentially taxable income from all sources, including income from outside the U.S. (even if the tax rules allow you to exclude all or part of that income). Don't include Social Security benefits unless you use married filing separate status and lived with your spouse at any time during 2006. However, if you received Social Security benefits, you will need to do a separate calculation using the worksheet provided in the Form 1040 instructions to see if any of your benefits are taxable. If they are, you generally must file a return.

Filing Status	Your Age on 12/31/06	Gross Income Threshold ($)
Single	Under 65	8,449
Single	65 or older	9,699
Head of household	Under 65	10,849
Head of household	65 or older	12,099
Married filing jointly	Both spouses under 65	16,899
	One spouse 65 or older	17,899
	Both spouses 65 or older	18,899
Married filing separately	Any age	3,299
Qualifying widow(er) with dependent child	Under 65	13,599
Qualifying widow(er) with dependent child	65 or older	14,599

* If you file jointly but were not living with your spouse as of Dec. 31, 2006 (or on the date your spouse died, if applicable), you must file a return (regardless of your age) if your 2006 gross income exceeded $3,299.
** If your spouse died in 2004 or 2005, and you had at least one dependent child during 2006, you can file as a qualifying widow or widower for last year. If you qualify, this means you can calculate your federal income tax bill using the more-favorable standard deduction amount and tax bracket amounts for joint filers.

Different Rules if You're a Dependent

Reduced gross income thresholds apply if you're claimed as a dependent on another person's Form 1040 for 2006. In this case, you cannot file jointly with your spouse if you're married (you must file using married filing separate status in order to be claimed as a dependent on another person's return). Once again, these income thresholds are based on the 2006 standard deduction and personal exemption amounts, and they depend on which of the following four scenarios you fit into.

Scenario 1: You were unmarried (and not age 65 or older or blind) at the end of 2006

Scenario 2: If you were unmarried and age 65 or older or blind at the end of 2006

Scenario 3: If you were married (and not age 65 or older or blind) at the end of 2006

Scenario 4: If you were married and age 65 or older or blind at the end of 2006

Other Situations Where Filing Is Required

Regardless of your gross income, you must file a 2006 Form 1040 if you are in any of the following situations.

You owe any "special taxes" for 2006 such as the alternative minimum tax, special taxes related to an IRA or qualified retirement plan account (such as the 10% penalty tax on IRA withdrawals before age 59 1/2), or federal employment taxes for a household employee. (This is not an exhaustive list of "special taxes.")

You received advanced earned income credit payments from your employer in 2006 (these will be shown on your 2006 Form W-2).

You had net earnings from self-employment of $400 or more for 2006.

You had wages of $108.28 or more in 2006 from a church or church-controlled organization that is exempt from Social Security and Medicare taxes.

You May Still Want to File If...

Say your 2006 gross income was low enough that you're not required to file Form 1040 for last year. Great, but it may be a good idea to file anyway. Here's why.

You may be due a federal income tax refund for 2006, for example, because of the refundable earned income tax credit or the refundable dependent child tax credit. No 2006 return means no refund.

Until your 2006 return is filed, the three-year statute of limitations period for the commencement of an IRS audit won't start. So the IRS could decide to audit your 2006 tax situation five years (or more) from now, and hit you with a tax bill plus interest and penalties. In contrast, if you file a 2006 return showing zero federal income tax liability, the IRS generally must begin any audit of your 2006 tax year within three years of the filing date.

If you had an overall capital loss for 2006 caused by investment losses, you can carry that loss forward to future tax years and offset otherwise taxable capital gains in those years. However, you must file a 2006 return to establish that you incurred a tax-saving capital loss carryover last year.

If you had an overall net operating loss (NOL) for 2006 caused by business losses, you can carry the NOL back to your 2004 tax year and possibly claim a refund. Alternatively, you can choose to carry the NOL forward to future tax years and offset otherwise taxable income earned in those years. However, you must file a 2006 return to establish that you generated a tax-saving NOL last year.

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The General Rules

Different Rules if You're a Dependent

Other Situations Where Filing Is Required

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