Please see the following article:
Updated for Tax Year 2016
OVERVIEW
Any year you have minimal or no income, you may be able to skip filing your tax return and the related paperwork.
Being
allowed to skip filing your tax return and the related paperwork sounds
like a good deal. Any year you have minimal or no income, you may be
able to do just that.
However, it's perfectly legal to file a tax return showing zero
income, and this might be a good idea for a number of reasons. Before
you decide to skip your return this year, consider whether it might be
worthwhile to file.
Income requirements
Even
if you earned income last year, if it falls below the IRS minimum you
don't have to file a tax return. The minimum varies according to your
age and filing status -- whether you are single, head of household,
filing jointly with your spouse or you can be claimed as a dependent on
someone else's taxes.
The IRS also adjusts the minimum amount of earned income from year to
year for inflation. Individuals who fall below the minimum may still
have to file a tax return under certain circumstances; for instance, if
you had $400 in self-employment earnings, you'll have to file and pay
self-employment tax.
If you have no income, however, you aren't obligated to file.
Credits may earn you a tax refund
The
IRS offers a number of tax credits that you can take directly off your
taxes rather than your income. If the credit is more than you owe in
taxes, in some cases, you can claim the excess credit as a refund.
The IRS lists the "additional child tax credit" and the "earned
income tax credit" as examples; if you qualify for these credits, you
can receive a refund even if you paid no taxes. To claim the credits,
you have to file your 1040 and other tax forms.
File now, deduct later
The
IRS limits how much you can claim with various deductions and credits.
For example, you can't claim a home office deduction so large that it
would put your business into the red; instead, you claim zero business
income for the year, and carry any leftover deduction into the next
year.
Smart Money writer Bill Bischoff advises that if you have deductions
or credits carrying over, you can't claim them if you have no income,
but you need to file your taxes to claim them in a future year when you
do have income
Protect yourself from future audits
The IRS operates under a statute of limitations when it comes to auditing old tax returns.
If you've reported your information accurately, in most cases they
can only go back three years. However, the clock only starts for a given
year when you actually file your tax return.
If you don't file, the IRS can always come back and audit you. For
this reason, the IRS recommends that even if you don't file, you still
keep any relevant financial records indefinitely.
