No it isn’t that upcoming AP exam or SAT test that is going to the be the biggest trial of your mental ability. It’s actually going to be returning your taxes. Tax returns are a very complex subject, seemingly without reason.
They can be especially complex when you’re going at it for the first time, as a minor or young adult, And because you’re in this such demographic, there aren’t many resources on Google to help you out. Because I am filing my tax returns, I thought it’d be a great idea to write a guide on how to do it yourself. This is how to file tax returns as a minor or young adult:
Before we get started here are some main points, and questions you should ask yourself regarding taxes:
Single dependents—Were you either age 65 or older or blind?
No. You must file a return if any of the following apply.
-Your unearned (think dividends, and interest) income was over $1,050.
-Your earned (usally from an employeer) income was over $6,350.
-Your gross income was more than the larger of—
$1,050, or your earned income (up to $6,000) plus $350.
– Your earnings from self-employment are $400 or more (babyitting, and freelance work).
Yes. You must file a return if any of the following apply.
-Your unearned income was over $2,600 ($4,150 if 65 or older and blind),
-Your earned income was over $7,900 ($9,450 if 65 or older and blind),
-Your gross income was more than the larger of—
$2,600 ($4,150 if 65 or older and blind), or
Your earned income (up to $6,000) plus $1,900 ($3,450 if 65 or older and blind)
In summary, you need to file taxes if,
- The child has unearned income (from investment interest, gains, and so on) above $1,050.
- The child has earned income above $6,300.
- Gross income is greater than the larger of $1,050 or earned income up to $5,950 plus $350.
- Earnings from self-employment (like babysitting) are $400 or more.
Here’s an example from Investopedia:
Johnny is 17 years old and is claimed as a dependent on his parents’ tax return. He earned $100 in interest income from a bank account in his name (unearned), $1,500 working part-time in a gas station (earned), and $200 mowing lawns (self-employment). He does not have to file because he doesn’t meet any of the four tests.
[First things first, in life, there are only two constant things; death and taxes.]
Understand that there are two main different types of income methods that minors and young adults will be experiencing. There is self-employed income, and normal income. The difference between these two is that self-employed income does not come from a single Source. Think of it as freelance work, it can relate to writing articles, doing odd jobs or being a babysitter. Normal income will come from a structured job, like a cashier, a fast food worker or maintenance worker. There are different tax returns for each type of income. You will be filing a 1095 for self-employment income, and you’ll be filing a 1040 for normal income.
Because you are a minor you may be applicable for an exemption on your normal income. If you earn more than $6,350 of income in 2017 must file a personal income tax return and might owe tax to the IRS. Earned income only applies to wages and salaries your child receives as a result of providing services to an employer, even if only through a part-time job.
For example if you are a 16 year old and work at a local supermarket as a part time cashier, but you earn less than $6,350, you probably do not need to pay tax. But because you are earning normal income, your employer probably withheld tax from you no matter what. If they did this, you’ll have to file a tax return to obtain a refund. So, exemption or not, you’ll probably be filing a tax return.
[ not to confuse you, but there is a third type of income. I feel the need to mention this because this is a Blog about investing. The third type of income is from investing. It’s taxed differently than self-employment income in normal income. Because of this, it’s a very complicated topic, and if I were to write about in this blog post, I would need to make it into a book. Instead, I’ll link to a great overview here. Just know that if unearned income (like dividends and interest) is greater than $1050, you will need to be filing taxes on investment income.]
In my case because my employer withheld my earnings, I am send a W-2 form in the mail. This gives me a record of how much iron, and how much is going to be taxed. I then file a 1040 form, and send it to the IRS. Because my taxes were withheld by my employer, I do not need to send any money to the IRS, just this form which acts as a confirmation about my taxes.
Also, many taxpayers can e-file for free through IRS Free File. Free File is only available on IRS.gov. Some taxpayers may also qualify to have their taxes e-filed for free through IRS volunteer programs. Volunteer Income Tax Assistance offers free tax preparation to people who generally earned $54,000 or less. Tax Counseling for the Elderly generally helps people who are age 60 or older.
The big question I’ve heard is, “can I file my tax return with my parents?”. Well, it depends. IF you are under age 19 (or a full-time student under 24), and the child’s income is less than $1,500, and only from interest and dividends, it can be attached to the parent’s return using Form 8814. However, if you are working full or part-time, there is no way that you earned under $1,500, so the majority of kids will be filing individual tax returns.
If I were you, I would try to do tax returns on my own. I feel that you learn best by actually doing it, so filing your tax returns now where you have limited deductibles and low income allows you to learn, and gives you less of the chance to screw up. If you only worked a summer job, then I would follow the guy that I posted above on how to follow a 1040 tax return form from your W-2.
However, if you have multiple sources of income and like many entrepreneurs, I would refer to various sites on Google, as well as TurboTax. TurboTax offers a free tax return solution, as well as a paid solution, and is much better in the long run than an accountant. However, if you have access to an accountant through your parents, you should also consult with him/her.
This brings up another point. Don’t simply go at your tax returns on your own. You should bring your parents into this situation, because it could have real-world consequences if you mess it up. Yes, you should learn by doing, and strive to complete your taxes by yourself, but you should not send it to the IRS without having her parents check it over. They’ve been here multiple times, and do know what they’re doing.
Some big closing points:
Legally, children bear primary responsibility for filing and signing their own income tax returns
Children can receive tax deficiency notices and even be audited.
Taxes are very confusing and have many little details that you need to learn about. You shouldn’t go at them alone. At the least, try out turbo taxes free tax return software, and discuss with your parents. If you are still confused, pay a hundred bucks to get a consultation from an accountant