Mothers Don’t Let Your Children File Their Own Taxes
At least not before you read this
Our kids inevitably grow up and start their first jobs. It may be at McDonald’s or the grocery store, or even at Mom or Dad’s business. They won’t earn much, in most cases.
Most kids are shocked when they get their first pay check to see that some of their money has been siphoned off to the government. What is this withholding? Who the heck is FICA?.
Well, they talk to their peers and find out that they might get some of that money back. Now is the time that they may be chomping at the bit to get their refund. And that’s OK, because it is their money.
But if your children are of college age, and are actually going to college, you and they need to tread lightly. Why? Because some of the most important tax credits–and by important I mean large–can be lost by improperly filed tax returns by family members.
It happens every year, and I’m sure it will this year even after I write this. Mom and Dad file their return. A few days later they get a letter from the IRS saying that their son’s (or daughter’s) SSN has already been used on a tax return, claiming the personal exemption for that person. “What,” they say (possibly in unison), “is this that identity theft I’ve heard about?”
So they go to their friendly tax adviser and tell their tale of woe. The first question is, “Did Jr already file his own return?” A quick phone call reveals that, in fact, Jr did. And he already got the direct deposit for the $125 he had withheld from his check.
So, since Jr already claimed his own personal exemption, Mom and Dad can’t take him as a dependent. That costs them around $350 (for average taxpayers). But that’s the least of it. Since Jr is in college he had college expenses, and Mom and Dad claimed the American Opportunity Credit in the amount of $2500. Sorry, Mom and Dad, you can only take this credit if your dependent is in college. And, sorry Jr, you can’t take the credit yourself since you are under age 26.
The only solution at that point is a lengthy round of amended returns, followed by another return, and possibly a delay of nearly three months before the whole process is done. All for $125 refund.
Families with kids should file their tax returns in concert so that everybody gets the most benefit of the tax law. If Jr had simply been certain to check the box stating that he could be claimed on someone else’s return, the problem would have been avoided. And Jr probably will still probably get the same full refund of his withholding.
If you use TurboTax or another computer preparation program, it won’t stop either you or Jr from making this mistake. It’s one of the things that someone like me can make you aware of. Or, you can simply put the preparation of your entire family’s tax returns in my hands to guarantee these kinds of mix ups won’t happen.
Please comment on your experiences when your children started filing their own tax returns.