Tax disclaimer: ClearValue Lending is not a CPA, tax advisor, or tax attorney. This article is general financial education. Tax rules, credit amounts, and income thresholds change annually — verify current figures at irs.gov or consult a qualified tax professional before filing.
If your income is under $40,000, the tax code has multiple programs working in your favor. Most people in this income range don't itemize (the standard deduction is almost always higher), qualify for the EITC, can file their federal return for free, and may be eligible for a credit just for saving for retirement. The gap between what filers are entitled to and what they actually claim is significant — Brian covers the key moves in the @clearvaluetax9382 video above.
This companion piece adds the numbers and the eligibility specifics.
The EITC: the most valuable tax break most filers underuse
The Earned Income Tax Credit (EITC) is a refundable federal tax credit for working individuals and families with low to moderate income. "Refundable" means it can generate a refund beyond what you paid in taxes — even if your tax liability is zero.
For tax year 2025, the maximum EITC by family size (per IRS EITC tables at irs.gov):
- No qualifying children: $649 (income limit: $19,104 for single filers)
- 1 qualifying child: $4,328 (income limit: $50,434)
- 2 qualifying children: $7,152 (income limit: $57,310)
- 3 or more qualifying children: $8,046 (income limit: $61,555)
Investment income cannot exceed $11,950 to qualify (IRS irs.gov, Publication 596).
Two things most people miss:
- Self-employed and gig workers qualify. EITC is based on earned income — wages, self-employment income, gig work. If you're freelancing or running a side hustle, your net self-employment income counts. This is especially relevant for early-stage founders and sole proprietors.
- You have to file to claim it. The IRS doesn't send it automatically. Filing a return — even if you don't otherwise have to — is the only way to collect.
Verify exact thresholds for your filing status at irs.gov before filing.
The standard deduction: itemizing rarely makes sense under $40K
Post-TCJA, the standard deduction is high enough that itemizing only makes sense if your deductible expenses (mortgage interest, state/local taxes, charitable contributions, medical expenses above the threshold) exceed the standard amount.
For 2025 (per IRS Rev. Proc. 2024-40, irs.gov):
- Single filers: $15,000
- Married filing jointly: $30,000
- Head of household: $22,500
For most people earning under $40,000, the standard deduction exceeds what they'd get from itemizing. Take it. Don't spend hours gathering receipts unless your situation is unusual.
File free: IRS Free File and VITA
IRS Free File (apps.irs.gov/app/freeFile): if your AGI is $89,000 or less, you can file a federal return at no cost using IRS-partnered guided software. This is a real federal program — not a trial, not a limited version. Federal filing is free; state filing depends on the specific provider you choose within the program. Access it through the IRS website, not the provider's homepage, to ensure you're in the free tier.
VITA (Volunteer Income Tax Assistance): if your income is generally $69,000 or below, IRS-certified volunteers prepare and file your return for free in person (irs.gov VITA locator). Useful if you prefer human help or have a more complex situation (self-employment income, multiple W-2s, credits to claim). Find a VITA site near you or call 800-906-9887.
Both programs are run or certified by the IRS directly.
Once you are ready to fund a business, ClearValue Lending can help.
Many founders start in the low-income phase before scaling. When you are ready — with 1-2 years of tax returns, an established entity, and business bank history — ClearValue Lending routes your application to lender partners positioned to fund your stage. Subject to lender partner approval.
Start your application →The Saver's Credit: a retirement bonus for lower-income filers
If you contribute to a 401(k), IRA, SEP-IRA, SIMPLE IRA, or ABLE account, you may qualify for the Saver's Credit (Form 8880) — a non-refundable credit on top of any deduction from the contribution itself.
Credit rates for 2024 — per IRS Form 8880 guidance at irs.gov (verify 2025 thresholds at irs.gov):
- 50% of contribution: single filers with AGI at or below $23,000
- 20%: single filers with AGI $23,001 to $25,000
- 10%: single filers with AGI $25,001 to $38,250
Maximum qualifying contribution: $2,000 (single) / $4,000 (joint). Maximum credit: $1,000 single / $2,000 joint (IRS Publication 590-A, irs.gov).
If you're in the 50% tier, a $2,000 IRA contribution gives you a $1,000 credit — plus the potential IRA deduction. For low-income earners, this stacks.
Restrictions: you must be 18 or older, not a full-time student, and not claimed as a dependent on someone else's return.
Watch out: tax-prep scams target low-income filers
The FTC consistently warns that low-income filers are disproportionately targeted by fraudulent tax preparers and refund-anticipation loan schemes. Red flags: preparers who charge fees based on a percentage of your refund, promise unusually large refunds before reviewing your documents, or ask you to sign a blank return. The FTC's ftc.gov consumer education page on tax scams lists the warning signs. VITA and IRS Free File eliminate the incentive for this class of fraud — there is no paid preparer.
The founder connection
Many small business owners and freelancers start in this income range — especially in year one or two before revenue scales. The same rules apply: EITC is available to self-employed earners, Free File covers most founders in early stages, and the Saver's Credit rewards early retirement contributions regardless of how the income was earned.
One forward-looking note: if you're building a business, your tax filings now become your underwriting record later. Self-employment income reported to the SSA (Social Security Administration) through Schedule SE also builds Social Security benefit credits — an additional reason to report accurately rather than under-report. And net self-employment income on Schedule C — not gross revenue — is what lenders use to evaluate cash flow when you apply for business financing. The CFPB notes at consumerfinance.gov that tax returns are among the most common documents lenders request to verify income. Filing accurately and completely matters before you ever walk into a funding conversation.
Related reading
- IRS Side Hustle Income 2026: What Freelancers and Founders Need to Know — 1099-K thresholds, Schedule C, and why your tax history is your funding history
- Tax Brackets Explained for Beginners — 2026 Guide — how marginal rates work and where your income lands
- Sole Proprietorship Tax Reality for Funding Applications — how Schedule C net income affects your borrowing power
- Uber / Rideshare Driver Tax Deductions 2026 — EITC eligibility and deductions for gig-economy earners
ClearValue Lending is a small business funding platform — not a lender, broker, CPA, or tax advisor. This article is general financial education based on IRS.gov publications current as of May 2026. Credit amounts, income thresholds, and program eligibility rules change annually. Verify all figures at irs.gov or consult a qualified tax professional before filing. Financing is subject to lender partner approval.
