Teaching your children about taxes

There are certain types of instruction that many kids find fun and exciting. Riding a bike, learning the ABCs, tying their shoelaces and learning basic arithmetic are a few examples. However, as kids get older, many lessons become more important, such as smart money management, the importance of getting good grades and learning life skills. Although they may not take on these lessons with as much enthusiasm, they are important and many parents try to guide their children through them so they have a bright future. Teaching kids about taxes typically falls into the latter categories, and while explaining the intricacies of the tax code may be better left to a tax preparer, parents can still instruct their children on the basics. These skills can be especially helpful for high school and college students who also maintain year-round employment and must file returns. 

There are several ways parents can start instructing their children in this category. For instance, it's important to first explain that there are different types of taxes, including sales, local, state and federal. While many teens may be well aware of federal income taxes, few may realize that they may have to pay state taxes on their employment income or car taxes to their local government. In addition, certain purchases in some states - such as Rhode Island and Delaware - are tax-free, while a sales tax may apply in other states.

It's also useful to teach kids that taxes may not only be applied to income from working, but from other areas as well. This includes gifts, gambling or contest winnings, retirement accounts, interest from a bank account and owning a home or business. While teens may not be affected by these factors at present, understanding that financial categories and income outside of employment will impact their tax responsibilities is important for the future. 

Show them real-life examples
When it is time to begin discussing federal taxes, parents can demonstrate certain lessons easily by showing their children how they prepare for the tax season. This can be a good time to explain and show them W-2s, 1099 forms and other documents that Americans may receive when it's time to file their federal returns. These lessons can also be a way to touch upon credits and deductions for which they may qualify and how each of these benefits may impact whether they owe a tax liability. When kids gain exposure to these types of lessons, they may gain a greater appreciation and understanding of the big financial picture, which can help them make smarter decisions as they grow up. 

For a more in-depth look at Liberty Tax Service, visit the Give Me Liberty! Magazine. Follow Liberty Tax on Facebook and on Twitter or contact Liberty Tax directly at 1-877-at-Liberty.

Posted To: Tax Ranger's Blog By: Tax Ranger On: Friday, August 23, 2013
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