Kids and Taxes

 

I hope you’re having a great day, and we’re continuing on this month with our “Financial Literacy for Kids” theme. 

Today, I want to talk about taxes. 

Now, I’m not talking about preparing a return, although for older kids, it’s certainly something to consider.  I’m talking about all the other taxes that dominate our lives – sales taxes, property taxes, ad valorem, and so on. 

Even the smallest child can comprehend the cost of a drink at the store isn’t what they actually end up paying for that drink, and this gives you the chance to explain sales tax.  The same holds true when you go to get the tags on a vehicle renewed, or when you make any purchase at a big box retailer. 

Even online payments – in many instances today – require the payment of some type of tax. 

As kids get older, of course, they can begin to understand bigger concepts like income tax – and this brings up a valuable point:

You don’t need to hide your income from your kids.  Yes, it may “feel” funny, but leveling with them about income, and how you then have to budget your money for the week or the month, allows them to learn. 

Now, the fact is, we all know that kids run their mouths, so you might not want your business shared with the world.  That’s perfectly understandable, but teaching them about things like income tax and Social Security is best done with a paycheck stub. 

I can tell you from experience, there aren’t many adults who seem to be comfortable figuring out a W-4 form and their withholding, from their employer (where they’ll have to determine their number of dependents), so this is an ideal opportunity – since your kid won’t know how – to teach them.   Legally, that employer is not allowed to answer questions about filling out that form, either, so your son or daughter may find themselves in a pinch, like one client’s son did – of having claimed he was not subject to any withholding (on the old Form W-4) and having to pay a significant amount of taxes the next Spring. 

There are a lot of resources available online to help you with these types of financial literacy conversations, and, when my schedule allows, we’re always happy to try and help, too. 

When you take the time to educate your kids on matters of taxes and money, you’re really giving them an advantage many parents aren’t doing.  Not only are you creating smarter young people, you’re helping them to understand the real value of money. 

Not enough young people are learning that right now. 

All the best-

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