Is this the year where you will be helping your child with their first tax return?
Every decade brings a new generation of taxpayers. As this happens, old clients and friends reach out for guidance as their kids or grandkids are beginning their “journey” as taxpayers.
What can you say to them? What do they need to be warned about? How should you teach them about this new responsibility?
You may need to prepare yourself for this important moment in your child or grandchild’s development. Here are a few important lessons to share from your friendly tax advisor:
How to Help Your Child With Their First Tax Return
First things first. When someone takes their first job, take the time to sit down with them. Then ensure they are listing their tax liability properly on their W4.
It might seem simple (and maybe it is to us, but we’ve all been doing this a lot longer than a kid with his first job). But since their employer can’t give them any answers, “our” kid is having to fill out a form that asks some misleading questions…
- “Other income”
- “Deductions”
- “Extra withholding”
…And so on.
Now, this ought to be pretty straightforward. But, before your child goes to fill out their new hire paperwork, take a moment to Google “W4” and look it over with them.
Answer Their Questions
Answer their questions. Point out a few things that don’t impact them now but might in the future. And so on.
This helps to ensure they have shared their tax and withholding information with their employer. Once they begin to get paychecks, it’s never a bad idea to verify with them that the proper amount is being taken out in their checks. Many, many times we’ve seen where supervisors make input errors with new hires. And this can cause a tax problem for young people.
When that first tax season rolls around, they might struggle a little. And you should expect to help them handle some stress. Perhaps they don’t know what they did with their W2 or any other tax paperwork they should have held on to. Today, obviously, this isn’t the challenge it once was since many companies offer W2s digitally. A new copy is only a few clicks away. But banking information, or, in the case of trust funds, college savings accounts, and other financial accounts, might not be so easy to track down.
When To File
The biggest question I get, of course, is, “When to file.” And, while there are a lot of rationales for any answer. My advice for anyone filing for themselves and not using a tax professional for preparation is this: as soon as possible!
I say this for two primary reasons:
- They can beat the rush. And, if they encounter any problems, they have time to sort out the proper solution.
- They can get their refund sooner!
Cash in hand is almost always preferable to waiting…
Teaching Your Child How To Spend A Tax Refund Properly
One thing that I don’t see a lot of parents and grandparents doing for those first refund checks is one of the most important: Teaching those kids how to spend it properly.
Every year, young people blow a good portion of their hard-earned money on consumable things that have no lasting value.
- Teach them how to spend or save their refund checks.
- Teach them about putting money to work, not on consumer goods, but on purchases that have long-term value.
Sure, they should spend some of it – it’s theirs, after all. But learning financial discipline is a valuable thing that can’t be taught in school. That’s why helping your child with their first tax return is so important.
Of course, if you have any questions, I am ready to help. Reach out if you need it!
My team and I are more than happy to answer your questions. Use the button below to ‘Book a Free Consultation’ or give us a call or send us a message through our contact form below and let’s get you on the right track!
