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Last year I made a reasonable salary and paid nearly 40K in taxes. However, this year I have been living off of savings and have had zero income. I would like to recover some of the money I paid in taxes last year, but I don't know if that is possible.

Is it the case that I can claim some additional refund from my previous year's taxes? If so how?

  • 1
    You can carry investment losses forward, but other than that and maybe a few other scenarios each tax year stands on its own. You can't apply losses or deductions from this year to prior year's income or taxes. – D Stanley Dec 12 '17 at 21:36
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For the most part: No. If you had literally zero income this year than you will presumably owe zero taxes. But this doesn't in any way reduce the income you earned last year, so there's no reason why it should reduce last year's taxes.

There are some types of deductions that are limited, like charitable contributions, and if you have more of these deductions than the limit you can take the limit this year and then carry the excess over to next year. There are some types of business losses that you can carry forward to future years. But I don't know of any provision in tax law that says you can "carry backwards" any excess deduction or loss.

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For US, if you have nonbusiness deductions (excluding net capital loss and personal exemptions) without or exceeding income, you have a Net Operating Loss which (although there are a lot of special cases) is usually carried back to the previous two years, and then carried forward. But it's fairly complicated; see pub 536 online or downloadable in PDF from 'search forms & instructions' on the new less-useful homepage.

Unless you took retirement savings like a traditional IRA or other qualified money, in which case of course you did have taxable income.

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No, you can't use this year's deductions to offset last year's taxes. However, there are a few things you can do to take advantage of a low income year.

For example, if you have a traditional IRA, you could convert some of those funds to a Roth IRA. Normally, when you do that you need to pay income tax on that money. However, since you have no income this year, you could convert a certain amount of money that would be offset by your deductions and exemptions and end up paying no tax on the conversion.

Now would also be a good time to realize some capital gains from your investments, as you would be paying a much lower rate than you probably were last year.

Since you are in a low tax bracket, anything that you do that you need to pay tax on will be cheaper this year than it was last year.

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For future and other people who want to take a year off work, there is a simple way to get tax advantages: offset the vacation year by 6 months from the tax year.

So for example, you could take June 2016 to June 2017 off work, and would pay lower tax rate for both 2016 and 2017. A $40k tax bill implies an income of about $200k and tax rate of about 20%. A half year approach would reduce income of each year to $100k and tax rate to 16%, giving tax savings of about $8000.

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