Ask HN: Have any of you filed "$0" in your Tax return?
14 comments
IAAL. In fact IAATL. In fact I have prepared hundreds of tax returns and am currently defending dozens of innocent Swiss bank accounts from the greedy clutches of the IRS. </STFU, Phil> But I digress.
Here are some scenarios.
1. You really truly have zero income.
In that case file an income tax return. You do not have a filing obligation but do it anyway. The IRS has a three year window to audit you. This time starts from the moment you file a tax return. So file the tax return and get the clock ticking.
This is a "stick the pacifier in the baby's mouth" theory of tax returns. The IRS will get noisy and send you letters asking why there is a gap in the sequence of filing tax returns. Prevent that.
Since the 3 year clock doesn't start until you file a tax return, imagine 7 years from now when you are a Bloated Plutocrat the IRS comes to audit you. They say "Hey, what about 2010? No tax return! We gotcha!" You say "But I didn't earn anything in 2010." They say "Prove it." You say, "Meh, I threw away all my paperwork for 2010 because I asked about electronic filing of financial records on HN and I got a comment back that said to never save anything."
You. Are. Dead.
Memo to all personnel: file the tax return, even if you lived on the beach and ate abalone you caught all by yourself and walked around naked.
2. You earned money but not a lot, so you don't owe any tax.
This is the scenario where you make a couple of thousand dollars, but below whatever the personal exemption + standard deduction is for that year. Even if you fully report everything, you won't owe any tax.
Again, file the damn tax return. It starts the clock running on the 3 year audit window. It prevents you attempting to reconstruct the past if the IRS does come back at you later.
This is especially true if you have a 1099 in any amount. You will get dunning letters from the IRS.
So do it.
3. You earn some money but you have deductible expenses and other losses that mean you owe no tax.
You can predict what I'm going to say. File. Start the clock running. Get your deductible expenses and losses documented.
4. Backing up a step.
I have handled audits where people have reported small amounts of income on their tax returns and the audit is triggered on a simple, common-sense question from the IRS computers: "Well, how did he eat and pay rent?"
Be prepared to document that you drew down from savings. It will work and work well as a defense on the audit.
5. I am assuming your startup is not incorporated.
There you are. Have at it. Question time! Hit me with some.
Here are some scenarios.
1. You really truly have zero income.
In that case file an income tax return. You do not have a filing obligation but do it anyway. The IRS has a three year window to audit you. This time starts from the moment you file a tax return. So file the tax return and get the clock ticking.
This is a "stick the pacifier in the baby's mouth" theory of tax returns. The IRS will get noisy and send you letters asking why there is a gap in the sequence of filing tax returns. Prevent that.
Since the 3 year clock doesn't start until you file a tax return, imagine 7 years from now when you are a Bloated Plutocrat the IRS comes to audit you. They say "Hey, what about 2010? No tax return! We gotcha!" You say "But I didn't earn anything in 2010." They say "Prove it." You say, "Meh, I threw away all my paperwork for 2010 because I asked about electronic filing of financial records on HN and I got a comment back that said to never save anything."
You. Are. Dead.
Memo to all personnel: file the tax return, even if you lived on the beach and ate abalone you caught all by yourself and walked around naked.
2. You earned money but not a lot, so you don't owe any tax.
This is the scenario where you make a couple of thousand dollars, but below whatever the personal exemption + standard deduction is for that year. Even if you fully report everything, you won't owe any tax.
Again, file the damn tax return. It starts the clock running on the 3 year audit window. It prevents you attempting to reconstruct the past if the IRS does come back at you later.
This is especially true if you have a 1099 in any amount. You will get dunning letters from the IRS.
So do it.
3. You earn some money but you have deductible expenses and other losses that mean you owe no tax.
You can predict what I'm going to say. File. Start the clock running. Get your deductible expenses and losses documented.
4. Backing up a step.
I have handled audits where people have reported small amounts of income on their tax returns and the audit is triggered on a simple, common-sense question from the IRS computers: "Well, how did he eat and pay rent?"
Be prepared to document that you drew down from savings. It will work and work well as a defense on the audit.
5. I am assuming your startup is not incorporated.
There you are. Have at it. Question time! Hit me with some.
Phil- This is truly great. Thanks so much. Really appreciate it. Going to file this week...
No income means no taxes, however, here are a few things to keep in mind:
- If you received any 1099s for contracting work, or W-2s for hourly work, the IRS also got copies of them, so they know what you made. - If you did receive any W-2s, chances are your employer also withheld income so by not filing, you're losing some money you would have gotten if you filed.
It's too bad you don't have any income, because if you did, you could write off all kinds of startup expenses as a business expense. Computers, a dedicated office in your house, a percentage of utilities and rent (sq. foot of office/total sq. foot of house), marketing expenses, books, tools, etc.
I highly recommend that you take advantage of all of these deductions when your startup starts to make money. Even TurboTax can walk you through them all; you don't need an accountant.
- If you received any 1099s for contracting work, or W-2s for hourly work, the IRS also got copies of them, so they know what you made. - If you did receive any W-2s, chances are your employer also withheld income so by not filing, you're losing some money you would have gotten if you filed.
It's too bad you don't have any income, because if you did, you could write off all kinds of startup expenses as a business expense. Computers, a dedicated office in your house, a percentage of utilities and rent (sq. foot of office/total sq. foot of house), marketing expenses, books, tools, etc.
I highly recommend that you take advantage of all of these deductions when your startup starts to make money. Even TurboTax can walk you through them all; you don't need an accountant.
How does he write off expenses if he has no income?
He doesn't: It's too bad you don't have any income, because if you did, you could write off all kinds of startup expenses as a business expense. (emphasis added)
Doh! I feel stupid now, I was keying off the last sentence. Thanks for stepping down to my current mental level :)
Not sure why the downvote, this is an honest question. What is the purpose of writing things off when you have no income, or so little income that you have no tax liability or the alternative minimum tax is enough to give you no liability?
I think the idea is that he is wasting the opportunity to make some tax free income. Any work that he could have done for X amount of dollars would have been compensated at full rate instead of market rate minus tax liability, given X does not exceed his deductible expenses.
AFAIK, the alternative minimum tax applies to high incomes. Maybe you were referring to wages below the standard deduction?
AFAIK, the alternative minimum tax applies to high incomes. Maybe you were referring to wages below the standard deduction?
Standard disclaimer etc. but you may want to defer your filing and use this opportunity to load some losses into this year, which you can offset against any future gains.
Also, it is rarely zero. You have interest on savings and money that you have spent in the process of working on your startup. You may want to account all the money you have spent so far and load it as a debt on your company - giving you a big negative number on your personal tax.
In short, don't put zero - because it isn't.
Also, it is rarely zero. You have interest on savings and money that you have spent in the process of working on your startup. You may want to account all the money you have spent so far and load it as a debt on your company - giving you a big negative number on your personal tax.
In short, don't put zero - because it isn't.
Thanks to everybody for the comments.
Few points: =>I have been heads down buried in my startup and not done any contracting or any other external work.
=>I have already incorporated my company and the initial investment in the company + other investors takes care of the company expenses/losses i.e. my costs & the company's are different.
Which comes to an interesting point? Do I need to even file taxes since I made no income?
Few points: =>I have been heads down buried in my startup and not done any contracting or any other external work.
=>I have already incorporated my company and the initial investment in the company + other investors takes care of the company expenses/losses i.e. my costs & the company's are different.
Which comes to an interesting point? Do I need to even file taxes since I made no income?
You can hire a CPA to do your taxes and advise you for about $75 to $100. I suggest you do so. Look for a smaller CPA firm, maybe 1 to 5 CPAs.
This is well worth the money. A good CPA will sit down with you at tax time and walk you through everything they're doing. Even if you don't go back next year it does a lot to demystify the process, allowing you to procede more confidently with your own filings in the future.
I've had negative tax returns before, but I've always found a way to "move" income from one year to another so that I've always put down something. (Realizing capital gains is probably the easiest way of doing this).
Putting down a zero means that you've lost an opportunity to move income from a high marginal rate year to a low marginal rate year, and have missed an opportunity to save a lot of money. Sometimes it's unavoidable, but often it just indicates poor planning.
Putting down a zero means that you've lost an opportunity to move income from a high marginal rate year to a low marginal rate year, and have missed an opportunity to save a lot of money. Sometimes it's unavoidable, but often it just indicates poor planning.
IANAL, IANAA, etc.
The year before I went back to school, I actually had negative income -- my business expenses exceeded my income, as I spent money on a startup that never went anywhere.
It's best to talk to an accountant who can file for you and make sure you handle such a thing correctly. But, unfortunately, I've certainly had a year where I had negative income.
The year before I went back to school, I actually had negative income -- my business expenses exceeded my income, as I spent money on a startup that never went anywhere.
It's best to talk to an accountant who can file for you and make sure you handle such a thing correctly. But, unfortunately, I've certainly had a year where I had negative income.
It is my understanding that you don't have to file taxes at all if your income is that low:
http://www.mydollarplan.com/money-file-taxes/
I never filed taxes when I was a student because I didn't have a job or my income was so low that it wasn't required.
http://www.mydollarplan.com/money-file-taxes/
I never filed taxes when I was a student because I didn't have a job or my income was so low that it wasn't required.
I've seen it suggested that you file taxes anyway:
http://wiki.answers.com/Q/Do_you_have_to_file_taxes_every_ye...
http://wiki.answers.com/Q/Do_you_have_to_file_taxes_every_ye...
Again, I'm no expert... but this may not be the case if you have received some income/1099's, and yet still have no net income after expenses.
if I'm reading that right, it says you don't have to file taxes if your net earnings are less than $400.
so I imagine you can always buy something at the end of the year to make your numbers come down to that.
so I imagine you can always buy something at the end of the year to make your numbers come down to that.
They will actually send you a letter telling you "that maybe you shouldn't file in the future if you have no income". The problem is that in some states, you need to file anyway because of some state paperwork the requires a 1040.
You should incorporate and show your expenditures as losses that will carry over to when your start up eventually becomes profitable. This is standard practice and will rightfully save you money by reimbursing you against your tax liability in the future.
You need to consider capital gains and interest on bank accounts, so the form might not be all "$0".
Make sure you file your state income tax form, if your state does that.
Make sure you file your state income tax form, if your state does that.
IPTDL (I prefer to date lawyers) and "that's what she said." More specifically, that income comes in many forms, and that even stock/options (in exchange for services) could count unless all the correct paperwork has been filed.
Read about earned income tax credit. I think your tax might go below zero and you can get refund even if you have zero income.
You actually need some income to qualify for EITC. It's refundable, in that you can pay negative taxes after EITC, but it's calculated as a percentage boost to your earnings (up to a threshhold), since it's intended to help the working poor. If you have no earnings, you get no boost.
i filed 0 for several years in a row (before 2009), I will probably file 0 for 2010.
I'll answer a meta question instead: how do you find answers to commonly asked questions?
This link demonstrates: http://lmgtfy.com/?q=1040+instructions
This link demonstrates: http://lmgtfy.com/?q=1040+instructions
lmgtfy should be used exclusively for bringing about a point for people who regularly annoy you with questions that turn up easily in first page of results for a simple single search query. Any other use is pretty dickish.
I am in the process of filing for my Tax return by oct 15th (the extended deadline). Does this mean I put a big fat "$0" on my tax returns?
I know it sounds obvious, but I find it quite strange to do that.
I used to make quite a bit before I did my startup and I was also married till my last filing where even if I was making no money, my former wife's income would atleast show some income in the tax return.
Do all startup people who live of my personal savings actually file a "$0" in thier tax return?
I know this is not a tax/CPA forum but I am curious about other founders experiences.