How to File Your Child’s First Income Tax Return

 

Filing an income tax return for your child may not be the first thing that comes to mind when you think about their financial responsibilities. However, it's essential to introduce them to the world of taxation early on. Teaching your child how to file their first income tax return instills financial responsibility and helps them understand the importance of paying taxes and contributing to society.

This blog will walk you through the steps to file your child's first income tax return.

1. Determine the Filing Requirement:
   The first step in filing your child's income tax return is determining whether they must file. Generally, if a child's income exceeds a certain threshold, they must file a tax return. This threshold can vary depending on their age and the source of their income. For example, in the United States, for the tax year 2023, a single dependent under the age of 65 must file a return if their unearned income (such as interest and dividends) is over $1,100 or if their earned income (such as wages from a part-time job) is over $12,550.
2. Gather Necessary Documents:
   Before starting the filing process, you must gather all the necessary documents. This includes income statements, such as W-2 forms from employers or 1099-INT forms for bank interest income. If your child has investments, you'll need statements from brokerage accounts or other financial institutions.
3. Choose the Filing Status:
   Your child's filing status depends on their circumstances. Most likely, they will be considered dependent on your tax return if they are under 19 or under 24 years old and a full-time student. However, if they have substantial income and are financially independent, they may file as independent taxpayers.
4. Choose the Appropriate Tax Form:
   The tax form your child should use depends on their income and filing status. The most common forms for individual taxpayers in the United States are the 1040, 1040A, and 1040EZ. Your child may be eligible to use the simplified 1040EZ form if their income is below a certain threshold and they meet specific criteria.
5. Complete the Tax Return:
   Help your child complete the tax return form accurately. If applicable, they must enter their personal information, income details, deductions, and credits. Be sure to review all the information to avoid errors.
6. File Electronically or by Mail:
   Once the tax return is completed, your child can file electronically using tax software or file it on paper by mailing the forms to the appropriate tax authority. Many people choose to e-file because it's faster and more convenient.
7. Understand Payment or Refund:
   Depending on your child's income, they may owe taxes or be eligible for a refund. If they owe taxes, ensure they understand the payment deadline and how to pay. They can receive a refund by direct deposit or as a paper check if they're owed a refund.
8. Keep Records:
   Please encourage your child to keep copies of their tax return and supporting documents for at least three years. This will be useful in case of any audits or questions from tax authorities.

Filing your child's first income tax return is an excellent opportunity to teach them about financial responsibility and the importance of paying taxes. By following these steps and involving them in the process, you'll help set them on the path to financial literacy and responsible tax management.

Consult with a tax professional or use tax software to ensure accuracy and compliance with current tax laws and regulations.

What Happens If You Don't File a Tax Return?

 

Tax season can be a stressful time of year for many individuals and businesses. Filing your tax return accurately and on time is not just a legal obligation but also essential to avoid potential consequences. However, some might wonder what happens if they don't file a tax return.

In this blog, we'll explore the repercussions of failing to file your taxes and why meeting your tax obligations is crucial.

1. Penalties and Interest
   One of the most immediate consequences of not filing your tax return is the potential for penalties and interest charges. The Internal Revenue Service (IRS) imposes late-filing penalties, which can be substantial. The disadvantage is usually calculated as a percentage of the unpaid taxes you owe, and it increases the longer you delay filing.
   Interest charges also accumulate on any unpaid taxes from the return's original due date until the date you pay them. The combination of penalties and interest can significantly increase the total amount you owe to the IRS over time.
2. Loss of Refunds
   When you fail to file a tax return, you're essentially forfeiting any potential tax refunds you might be entitled to receive. If you had too much money withheld from your paychecks throughout the year or qualified for tax credits, you might be owed a refund. However, the IRS won't issue a refund if you don't file a return to claim it.
   By not filing, you are giving up money that is rightfully yours. This is one of the key reasons to ensure you file your tax return, even if you think you don't owe any taxes.
3. Legal Consequences
   Avoiding your tax obligations can lead to legal consequences. While it's not common for individuals to face criminal charges for failing to file taxes, it can happen in deliberate tax evasion or fraud. Such payments can result in fines and even imprisonment.
   Additionally, the IRS has the authority to levy your bank accounts, garnish your wages, and seize your assets if you owe back taxes and don't address the issue promptly. These actions can have a severe impact on your financial stability and well-being.
4. Reduced Financial Opportunities
   Not filing your taxes can also affect your financial opportunities in the future. For example, if you want to apply for a mortgage, a car loan, or other forms of credit, lenders often review your tax returns as part of their approval process. If you haven't filed your taxes, securing these loans can make it more challenging or result in less favorable terms.
   Moreover, some government benefits and programs, such as federal student aid, may require you to provide tax information. Failing to file could hinder your eligibility for these benefits and opportunities.
5. Audit Risk
   Another potential consequence of not filing your tax return is an increased risk of being audited by the IRS. The IRS has the authority to assess your tax liability based on the information available to them. Without your tax return, they may use their calculations, which can lead to a higher tax assessment than if you had filed your return accurately.
   Filing your taxes and providing accurate information reduces the chances of an audit and ensures that you only pay what you truly owe.

Filing your tax return is not just a legal requirement; it's a financial responsibility with real consequences if neglected. From penalties and interest charges to legal matters and missed refunds, there are numerous downsides to not filing your taxes. It's crucial to meet your tax obligations accurately to avoid these potential problems and maintain your financial health and legal standing.

If you're facing difficulties, consider seeking assistance from a tax professional or the IRS to ensure you fulfill your tax responsibilities.

The Basics of Self-Employed Taxes for Jackson County Freelancers

 

Taylor Swift is everywhere right now. I’m guessing you noticed, too?

This weekend’s Grammy’s saw her fall in league with greats like Frank Sinatra and Stevie Wonder after winning album of the year for the 4th time (and a once-again snubbed Beyonce). The Grammy’s also saw some other dominant female singers snagging awards, too (Miley Cyrus, Billie Eilish).

Why do I bring this up today? Well, primarily because these women didn’t get where they are without lots of planning and strategic decision-making. 

Success in any business — as a singer-songwriter or as an Uber driver — means you have to know what’s required of you to make it succeed and how to navigate those requirements the right way.

That’s what I want to get into today. Because plenty of Kansas City side-gig people who started out small in 2020 are taking things full-time. And when you start doing that, that means knowing the basics of self-employed taxes, which I’ll get into today.

Tax season has begun, which means my calendar gets pretty full. However, I’m always ready to help new business owners get their feet under them with their taxes. And if you’re not new to the freelancing thing, I’m still happy to help you re-evaluate things and make sure you’ve got your tax strategy and mindset in place.

If you want to talk about some of those basics, grab a time here: 

https://www.afitonline.com/appointments

For now, let’s start the conversation here…

The Basics of Self-Employed Taxes for Jackson County Freelancers
“Do not wait until the conditions are perfect to begin. Beginning makes the conditions perfect.” – Alan Cohen

Making some extra money was probably the reason you got into side gig work. But, if you’re like many other freelancers out there, you saw an opportunity to step up your game and take this full-time.

And while that step is really liberating, it’s also a bit daunting when it comes to the logistics of running a business. Especially when you realize that managing taxes is now part of those logistics.

To save you some difficulty down the road and help get you in the right mindset about self-employed taxes, let’s get into some of the basics.

Here’s the deal with self-employed taxes:

Once you choose this route (even if only on the side), you’re now responsible for paying taxes on your income directly to the IRS. This includes both income tax and self-employment tax, which is a combination of Social Security and Medicare taxes. 

As a freelancer, you’ll pay both the employee and employer portions of these taxes, amounting to a total of 15.3% of your net earnings. With that higher tax rate, you’ll especially want to be meticulous in keeping track of expenses and other financial information as well as strategic in planning for your tax obligations. 

Think like a business owner, not an individual taxpayer

Adopting a business owner’s mindset is crucial with both finances and taxes. 

Not only do you have to track income and expenses, you have to think ahead with your business’s finances. One way to do that is by shifting your mindset from quarterly or monthly in your tracking and planning. Set aside money for taxes with each payment you receive. This forward-thinking approach ensures you’re prepared for your tax obligations like estimated payments and helps you take advantage of deductions. 

Self-employed taxes are more than a once-a-year thing

The rhythm of freelancing includes quarterly tax payments — a shift from the once-a-year filing you might be used to. The IRS wants your tax payments evenly distributed throughout the year. To prevent an end-of-year tax bill surprise and to help you avoid underpayment penalties, make sure you’re planning for these.

The 2024 due dates for estimated taxes are: April 15, June 15, September 15, and January 15, 2025. 

And it’s pretty easy to take care of making these payments online. Just go here: https://www.irs.gov/payments. There’s also an IRS app now to make easy payments, and of course, the good old-fashioned mail a check or money order option. 

Choose a business structure that’s right for you

Your choice of business structure, whether it’s sticking with a sole proprietorship or moving to an LLC or S-Corp, directly affects your taxes and personal liability. Each has its own set of tax advantages and protections.

As a sole proprietor, you benefit from simplicity in setup and tax filing, but you’re personally liable for any debts or legal issues your business encounters. An LLC (Limited Liability Company) offers protection against personal liability, meaning your personal assets are safe if your business runs into trouble. 

Electing to be taxed as an S-Corporation could potentially save you money on self-employment taxes by allowing you to split your income between salary and dividends, the latter of which isn’t subject to self-employment taxes. We’re happy to help you think this one through.

Don’t forget about the deductions available to you

Things like health insurance premiums, retirement contributions, and educational expenses can significantly reduce your taxable income. If you haven’t thought about that for this tax season, let’s talk.

As tax season is in full swing, now’s the perfect time to get a jumpstart on these tax basics. 

If you don’t prioritize thinking through these things now, at the start of your business, you’ll likely fall into trouble later down the road.

I’ve seen it happen to a lot of Jackson County freelancers. Don’t let that be you, and we’re here for you if you want guidance in setting up some good systems to take care of these things. 

Helping your freelance business succeed with self-employed taxes,

 

Mike Mead, EA, CTC

Alliance Financial & Income Tax

807  NW Vesper St

Blue Springs, MO. 64015

816-220-2001

AFITonline.com

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