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Do you have to file taxes even if you didn't make money? What if you had no profit and no loss? What if you had revenue but your expenses exceeded your revenue? I'm asking about both federal and state tax law.

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Since you mention profit and loss I assume you are concerned with business taxes, correct? –  Muro Dec 13 '10 at 3:30
    
Yeah (self-employment) –  Kirk Dec 13 '10 at 3:50
    
Are you the cool dude on codecanyon that i purchased a script from? :) –  J.T.S. Dec 13 '10 at 11:59
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3 Answers

up vote 14 down vote accepted

You're essentially asking the very common "Do I Need to File a Tax Return?" question. It's common enough that the IRS answers it right at the beginning of the Form 1040 Instructions, and it's answered fairly thoroughly here:

http://www.irs.gov/individuals/article/0,,id=96623,00.html

There's about 20 questions in that checklist which are mostly pretty specialized, but assuming you didn't have taxes withheld that you'd like to get back, and didn't have any retirement income/disbursements this year, the only interesting question is this:

"Were you self-employed with earnings of more than $400.00?"

Sounds like your losses outweighed your profits, and assuming you had no other income, I'd say you're fine not filing.

Can't really speak to state law since that can vary so much, but your state's laws are likely similar to federal, and you can probably find a very similar answer near the beginning of the instructions of your state's income tax form.

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I think you might be confusing earnings with profits. Losses wouldn't figure into earnings. –  JohnFx Dec 13 '10 at 15:42
    
earnings != taxable income. If your gross income is 100K and your deductions are 99601 - you definitely have to file, even if the taxable income is 399 < 400. –  littleadv Apr 14 '13 at 20:01
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If you're "living off the land" and make no money, then you don't have to file. Though you might be able to actually make money through credits and the like if you do file.

If you've lost more than you've made, then you'll probably need to file since someone will have needed to report that they paid you (W-2 or 1099-MISC). If the IRS receives a form saying that you made X and you don't file, they aren't going to just take your word for it that you lost more than you made, right? That, and if you want a refund, you'll almost certainly need to file to get it.

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Good point here - if you made money "on the books" that someone else paid to you (vs. getting paid strictly cash off the books, or vs. purely investment activity - where your broker knows your losses more than offset your earnings) then it's possible that you'd get audited. That said, if you would be able to demonstrate (via paper trail, receipts, etc) that you had more expenses than earnings - you would not have violated any law by not filing. –  Jon S Dec 13 '10 at 3:48
    
@jdsweet, true, but then it would be to your advantage to file. Some unclaimed passive losses can be carried from year to year, so even if the tax bill is zero, if a profit is made the following year, the unrealized losses from the previous year can be applied then. But that requires filing both years, doesn't it? –  mbhunter Dec 13 '10 at 3:58
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Yeah - speaking as someone who's been in roughly that situation myself, you can defer filing for now and then file this year's taxes a year later to document the loss before you claim the loss carryover in that following tax year. It's not illegal to have not filed in that case, and any/all late filing/payment fees are always computed as a % of what you owed, which appears to be zero in his case. –  Jon S Dec 13 '10 at 6:09
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Assuming you mean the United States - http://www.irs.gov/individuals/article/0,,id=96623,00.html

There is a nice list at the IRS website that if you answer yes to one of the questions, file you should.

Often, filing is how you get a refund that you are entitled to.

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