A Tax Return with All Zeros Can’t Be E-filed

I learn something new almost every day in this job, and here’s one example from this past tax season.

Setup

The client is a single woman who runs a daycare out of her house.

After her regular expenses were accounted for, she had a small profit. Then we factor in the home-office deduction, which was greater than her profit. However, a home-office deduction can’t generate a loss*, so she was able to deduct only enough home-office expenses to bring her net income down to $0.

(*-She rents her house, so she doesn’t have a mortgage or property taxes; only mortgage interest and property taxes can generate a business loss via the home-office deduction.)

The daycare was the only thing on her tax return. She had no other income, and made no estimated payments during the year.

Her business income was $0, AGI was $0, taxable income was $0, tax credits and payments were $0, refund was $0 and amount owed was $0.

I ran the e-filing diagnostics and was surprised to see that the return didn’t qualify for e-filing. I’d never had an “all 0” tax return before, so didn’t know about “Business Rule F1040-065-02:

At least one of the following must have a non-zero value on Form 1040: Line 22 ‘TotalIncomeAmt’ or Line 37 ‘AdjustedGrossIncomeAmt’ or Line 44 ‘TaxAmt’ or Line 55 ‘TotalCreditsAmt’ or Line 63 ‘TotalTaxAmt’ or Line 74 ‘TotalPaymentsAmt’.

(From page 4 of this IRS publication.)

What that’s saying is, a tax return must have a non-zero amount for total income, adjusted gross income, tax owed, tax credits, total tax, or total payments. If those fields are all zeros, the return cannot be e-filed.

In my client’s case, all of those fields legitimately landed at $0, so we had to file on paper.