What Your Teenager Needs to Know About Income Taxes

earnings

When your teenager looks at their first paycheck they will probably notice that some of their money was taken out. While it’s never too early to learn about taxes, it’s especially important when your teen is working that they become familiar with the basic rules of taxes. Having conversations with your teenager and discussing taxes is not only important to understanding what they are about, but it also helps your teen build confidence. Tax professional David Stewart outlines some of the most significant things you should explain to your teenager to help them understand taxes.


If your teen works, they will have to pay taxes

When paying income tax, age is no factor. If your teenager works for a company, they will see taxes taken from their paycheck. Your teen should also know that the higher the pay, the more taxes will be taken out of their pay. Also, if your teen makes over a certain amount of money in a year, they will have to file an income tax form and pay taxes on that amount.

“Under the table” jobs are considered earned income by the government

If your teen earns an income by babysitting or mowing lawns, they will have to pay self-employment taxes if the amount is above what is set for that year.

Lots of tax forms and paperwork are involved

When it comes to taxes, there certainly is a lot of paperwork and forms involved. When your teen first gets a job they will have to fill out a W-4 and when they get paid they will receive a pay check stub. If your teenager did self-employment work such as landscaping, they will have to fill out a Schedule C form. Show them each of the forms and explain to them how to go about filing them correctly.

What does the government do with the tax money?

It’s not uncommon for a teenager to ask, “Why does the government take money from my paycheck and what do they do with it?” Taxes are the government’s source of income and are used to fund government activities and services such as military spending, law enforcement and national highway repairs. You should inform your teen of the importance of these services and how they benefit everyone.

By explaining this important tax-related information with your teen, they will have a better understanding of taxes and how taxes influence and affect them.

 

Should You File Your Taxes Yourself or Hire a Pro?

tax return

When it comes to filing taxes you ultimately have two choices: do your taxes yourself or hire a professional. In either instance, it’s safe to say that everyone dreads the task. To help you decide if you should do your taxes yourself or call in a professional, tax expert David Stewart recommends you consider the following.

When Should You File Your Own Taxes?

While filing taxes may seem tedious and stressful, you may want to consider filing your own taxes if:

  • You keep track of transactions and receipts: In other words, you’re a numbers person and keep track of spending and expenses, and have everything organized. You know your financial situation best.
  • Your tax situation is simple: If you only worked one job, don’t have any dependents and no other sources of income, filing your taxes on your own will be simple.
  • You don’t own property or investments: When you own property or acquire investments, it can be hard to stay current on everything. Property and investments come with deductions and credits that can benefit your taxes.
  • You understand tax law: If you are knowledgeable in finance and tax law, and are up-to-date with the IRS standards, then filing yourself may be your better option. You can also save yourself time and money that hiring a professional requires.

When Should You Hire a Professional?

Hiring a professional to do your taxes is a great option if:

  • You don’t keep track of finances: If tracking spending and staying in the loop with transactions isn’t something you’re good at, then hire someone to help.
  • You don’t understand tax laws: Tax professionals stay current on tax laws and know how handle your specific situation.
  • Check for mistakes: We all make mistakes, but you want to avoid them when filing taxes. Hire a tax expert to serve as your second pair of eyes to ensure you file correctly.
  • You started a new business: If you just opened your first business, you will have business taxes to file. By hiring a tax expert they can help you find deductions and guide you in the right direction when filing.
  • You got married, divorced or had a child: If you’re recently married or divorced, and/or had a child, you may want to consider hiring a professional to help you determine the best filing status for that year.

Ultimately the decision is up to you whether to hire someone or do your taxes yourself, and is really a matter of what you’re comfortable with. If you’re comfortable doing your own taxes, then file yourself and take advantage of saving time and money, among other things. But if you can’t keep up with finances and don’t understand taxes well, hire a trustworthy professional to help.