The Advantages of Filing Each Year Even With No Income
Filing your taxes each year has distinct advantages, even if you have no income or believe your existing income is exempt from taxation. Submitting an annual return to the IRS allows you to develop a filing record with the federal tax agency and can aid your eligibility for government tax incentive programs and help you catch a potential tax error before it becomes serious.
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Developing a Paper Trail
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Existing on paper has its benefits, including establishing a history of your income--or lack of income--with the IRS. Filing a tax return each year, even if you have no income, allows the IRS to see that you have no income and you're not attempting to evade taxation. Filing a return can also reduce the chances of an audit of previous tax years, if you suddenly earn enough money to require a federal return, sell your home or start a business.
Receiving Education Grants/Loans
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You must file a federal tax return each year to continue receiving federal student aid in the form of student loans and grants. The government will not process your federal application for financial aid (FAFSA) until you show proof of filing your taxes, even if you have no taxable income. It's not enough to simply say you have no income on your application--the government wants proof. Receiving this government aid could be the difference between you being able to afford an education or not, so it's important to file your tax return to secure these benefits.
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Participating in Rebate Programs
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Participation in government tax rebate programs often requires you to file a tax return, even if you have no income or your low income exempts you from the filing requirement. Rebate programs can provide you with tax-free income to spend as you wish. For example, the Economic Stimulus Plan of 2008 issued rebate checks of between $300 to $600 to all eligible Americans who filed tax returns that year and had qualifying income of at least $3,000.
Checking For Errors
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Just because you think you don't have to file a tax return, doesn't mean that's legally true. Filing a tax return annually can help you check your math to ensure the income you receive is still exempt from taxation. The last thing you want is to operate under the assumption that your income is exempt, only to find out years later that you owe the government thousands of dollars in back tax payments. Failure to pay your federal taxes could also result in criminal liability, which means time spent in a federal prison.
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