What Your Teenager Needs to Know About Income Taxes

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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?

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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.

 

How Do People Cheat on their Taxes?

Although people really do hate to pay their taxes, do many of them cheat? According to one IRS report released in 2006 as reported by CNBC, 83 percent of people paid their taxes correctly and on-time. The other 17 percent either underreported their income or did not file a tax return at all. In fact, 90 percent of people do believe that paying taxes is part of their civic duty. For 60 percent of taxpayers, the other reason why they paid their taxes on time is because a fear of getting caught.

 

According to the IRS’s website, penalties for tax evasion depend on the level of the crime and how many times the person has been charged with the crime. For example, for a first time offense, tax evaders could spend as much as five years in prison and be forced to pay up to $250,000. Corporations would have to pay as much as $500,000. Still, the number of people who get charged with tax evasion is low. Only about 1% of people and corporations are audited each year and about 1,000 people go to jail each year with sentences ranging from a few months to 15 months in most cases.

 

In regard to how people can cheat on their taxes, underreporting income is far and away the most popular reason why people are charged with tax evasion. Falsifying income or receipts and not reporting income at all are far less common. And then there’s the question of whether there was intent. Tax avoidance is perfectly legal and can sometimes get mixed with tax evasion. It really can be a question of interpretation.

 

Still, it’s never fun to have your name associated with tax evasion. David Stewart of Bowling Green, KY found his name and tax evasion going together a few years back, and it can produce a negative stigma. Therefore, it’s always smart to really take a look at your records and make sure you are paying the full amount on your taxes.

 

Have you ever been audited? Tell us your stories in the comment section below.

5 Things You Should Know about Tax Evasion

tax evasion on calculatorDid you know that one of the most common federal tax crimes is tax evasion? While no one is necessarily thrilled about paying taxes, taxes are a part of our infrastructure. Failing to report taxes, reporting them inaccurately or failing to pay them is not only unfair to other citizens, but is a criminal offense that can be costly. Is someone you know facing tax evasion charges or do you simply want to have a better understanding of the subject? If so, check out this tax evasion information from businessman David Stewart.

1.  Tax Evasion is Illegal

Tax evasion is the most commonly charged tax crime. It is an illegal practice in which an individual or a business knowingly underreports or doesn’t report income in an effort to eliminate or lessen their taxes. A few common examples of tax evasion include businesses and employees underreporting income because they deal largely in cash (such as hair salons and waitresses), and families overstating the size of their home in order to receive a larger deduction.

2.  If Caught, You can Face Criminal Charges

Tax crimes are usually found during audits, as auditors are trained to look for signs of tax fraud. If you are caught evading, you may face criminal charges and substantial penalties. However, to be charged with a crime, the IRS has to prove that you intentionally underpaid your taxes.

3.  There is a Difference between a Simple Mistake and Deliberate Fraud

There are instances in which individuals or businesses make innocent mistakes when filing taxes. These will necessitate paying what you owed, but you will not face penalties and other charges. The good news is that most auditors will be able to distinguish innocent errors from intentional ones.

4.  Tax Avoidance is Not Tax Evasion

While the terms seem synonymous, they have different meanings. Tax avoidance lowers your bill by arranging your transactions so that you receive the largest possible tax benefits. As a citizen, you have the right to lessen the amount of taxes you pay, but only if it is done via legal means. Tax evasion, however, is a deliberate attempt to reduce the taxes you owe by misrepresenting your income and is illegal.

5.  An Attorney can Protect You

If you are accused of tax evasion or related charges by the IRS, it is imperative that you hire an attorney who specializes and is experienced in tax fraud and evasion to protect you.

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What Advice Does David Stewart Have for Western Kentucky Graduates?

On May 16th, thousands of undergraduate students will don their caps and gowns and receive their diploma from Western Kentucky University. As one of the top schools in the state of Kentucky and the entire southeastern region, Western Kentucky produces many talented young men and women, but as with many of us who were that age once know, the future can be intimidating. As a resident of Western Kentucky’s home, Bowling Green, KY, and a successful businessman, David Stewart has seen many talented people from Western Kentucky and other universities take their talents to the real world. Here are some things many of them know:

You Don’t Have to Have Everything Figured Out When You’re 25: Most of us don’t. If you don’t have your dream job right out of college, that’s okay. A great majority of us will have a career change at least five times in our lives. This is the time to learn more about yourself and the workplace to see what you might like to do to make a living. Always keep an ear for opportunities. You’ll be surprised how careers are made through a random series of events.

You’re Allowed to Fail: Our early twenties are the time to fail. As we get older, most of us will have more responsibilities that limit our ability to take chances: families, mortgages, etc. When you’re 22 or 23, you’re most likely renting and don’t have children yet. This is the time to take a chance and pursue your passion. If you do fail, you can pick yourself up and try something else.

Don’t Burn Bridges: Remember earlier about always keeping your eye open to new opportunities? The truth is that you’ll never know where that next opportunity might come from. Therefore, it’s important to make connections and keep those connections open. For example, if you leave a job that you don’t particularly like, don’t then trash the boss or your co-workers. You may never know where you might run into them into the future.

David Stewart would like to wish Western Kentucky graduates the best of luck as they make their mark in the world.