When it comes to tax filing season, most Americans know that they must get their own income tax forms filed in a timely manner. But what about your children? Do they need to file taxes as well? And what should you do to help them with this common, but often unwelcome, adult task? Here are five key steps to take.
1. Find Out if Your Child Must File. First, you will need to learn if your child is required to file state and/or federal income tax returns. While there is no age limit to tax obligations, there are earning limits. If your child earns a wage or salary, they have a higher threshold for filing than one who earns their own money as an independent contractor. Talk with an experienced tax preparer to learn more about these thresholds.
2. Plan Your Own Taxes. Before an older child files their own Form 1040, his or her parents or guardians should decide the key elements of their own taxes. If the parent will claim the child as a dependent, the child's income taxes may be higher. In addition, education credits and deductions are claimed by different taxpayers depending on who is claiming the child — themselves or another person.
3. Bring Your Child. When you make the tax preparation appointment for your kid's taxes, avoid the temptation to do all the leg work yourself. Why? First, most minors are allowed to — and expected to — sign their own tax returns if able. Since they will be liable for what is on the return, they should understand how it was created and calculated. Second, doing the work themselves is one step toward responsible adult behavior.
4. Plan for the Future. Once the return is sent to the IRS, your appointment should not be completed. Now, take the time to discuss expectations for next year. Will your child work more or less next year? Talk with the preparer about their future tax obligations. You may also want to discuss life changes such as the child going to college or planning to move out.
5. Turn Over Responsibility. Finally, begin transferring the responsibility for tax filing to the child who is earning the money. If you compiled their forms this year, have them compile these next year. Did you make the tax preparation appointment? Give them the opportunity to do it for themselves next year. And during the appointment, let your child take the lead with their preparer. They will take more ownership of this task and will form a good relationship with their own preparer.
If you follow these few steps, you'll set up your kids for success not only this year but for years to come. Want more guidance handling their taxes? Consult with a qualified tax preparation service today.