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Let's say that an adult (18 or so) is taking a year off after high school graduation. They are not employed or going to college (they're helping out on a farm), but have invested money into a CD. Let's say that the CD earns $20. Around tax time the bank sends a 1099-INT. Do federal and state taxes have to be filed on $20? We tried using a free tax website to see what would happen and it looks like a federal return is required, but not a state return because the amount is too low. It stated, "Your income is below the Virginia filing threshold so your Virginia taxable income and Virginia tax are automatically zero. However, you must still file a Virginia return to receive a refund."
The federal return looks really strange with $20 under total income and adjusted gross income. But then the tax website we tried using lists $1,050 for deductions. But $0 is owed and there's no refund, so I guess it's ok.? The person in question is also listed as a dependant on someone else's taxes. Is this how this whole thing should work? There has to be someone here with an adult teenager that knows about filing taxes like this. Anyone? The answer here is the difference between this young adult investing in a CD or not.
If you do not file the gov will not know that you were not required to file and could ask for information in the future so why not use a free program and file the return.
If you do not file a tax return at all, because you had no tax liability, you have not violated any laws. However, good practice indicates that you should, and here's one reason why.
Let's say your hypothetical student takes a year off after graduation and earns no money (to speak of) for that year. Then the next year he takes a reasonably well-paying job. Once he files the first tax return for that job, the IRS may compare it against the previous year's income. If there is no income reported at all, they may assume there was some income (they have their own rules, but maybe an average of the year before and the year after), and start trying to get the money their model indicates they're owed. Hassles ensue. I had a friend who had a very similar thing happen to him (so I am not making this up!) and he had a big hassle unsnarling it, when it would have cost him about half an hour to fill out a 1040 EZ and send it in.
If a 1099 is issued, the IRS is going to be looking for the matching tax return. Okey law: do absolutely NOTHING to bring attention to yourself with the IRS.
Let's say that an adult (18 or so) is taking a year off after high school graduation. They are not employed or going to college (they're helping out on a farm), but have invested money into a CD. Let's say that the CD earns $20. Around tax time the bank sends a 1099-INT. Do federal and state taxes have to be filed on $20? We tried using a free tax website to see what would happen and it looks like a federal return is required, but not a state return because the amount is too low. It stated, "Your income is below the Virginia filing threshold so your Virginia taxable income and Virginia tax are automatically zero. However, you must still file a Virginia return to receive a refund."
The federal return looks really strange with $20 under total income and adjusted gross income. But then the tax website we tried using lists $1,050 for deductions. But $0 is owed and there's no refund, so I guess it's ok.? The person in question is also listed as a dependant on someone else's taxes. Is this how this whole thing should work? There has to be someone here with an adult teenager that knows about filing taxes like this. Anyone? The answer here is the difference between this young adult investing in a CD or not.
Thanks.
No, they don't have to file a return for $20 in interest income. It's not required at that tiny amount.
Tell us about "helping out on a farm." Are they earning money for that?
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But $0 is owed and there's no refund, so I guess it's ok.? The person in question is also listed as a dependant on someone else's taxes. Is this how this whole thing should work? There has to be someone here with an adult teenager that knows about filing taxes like this. Anyone? The answer here is the difference between this young adult investing in a CD or not. 
