Do Your Kids Owe Taxes?
It seems inconceivable that something as innocent as a lemonade stand could rouse the interest of the IRS. Believe it or not, though, there are a number of entrepreneurial activities your kids might try which would yield taxable results. And, just like you or any other adult, there may be consequences for failure to comply.
Before you dismiss your child’s after-school operation as a harmless hobby for extra cash, consider the circumstances which would indicate a legitimate business venture. If there is a reportable responsibility, you can help ensure that your son or daughter handles it correctly and timely. Getting started with the right tax habits is essential to their long-term success.
Definition of a Business
Regardless of the type of business your children are engaged in, how much they made will determine whether or not they need to worry about the IRS. First, if they earned profits of $400 or greater last year, they will need to pay the appropriate amount in tax. Additionally, your youngster will be required to file a return.
Unfortunately, you’re not permitted to include your child’s tax info on your return. He or she must file a separate return, making sure to include all applicable income details. Also, it’s important to note that personal exemptions do not apply to children; these are reserved for you, the parent.
There are a number of other business-related items that your son or daughter may need to pay attention to, depending on the type of operation they’re running. He or she may need to become familiar with expense deductions, IRS form types and even payroll. Virtually any business feature that an adult would focus on may apply.
How to File
You may feel confident in your filing knowledge insofar as your ability to help your child file his or her return. Alternatively, the scope of their business endeavors may necessitate a professional tax preparer. In either case, it’s definitely a good idea for your child to actively participate in the filing process, so they begin to understand the full extent of their reporting responsibilities. This can also help prepare them for next year’s return, along with all the tax seasons they have to look forward to when they’re older.
Having a tax debt when you’re an adult can be a harrowing experience; when you’re a child, IRS complications can be overwhelming. The best way to prevent such an issue is to make sure that your business-minded adolescent files and pays their taxes by the due date. Failure to do so can result in penalties, IRS notices and, ultimately, collection action.
If an IRS issue does surface for your child, you’ll want to consult with a licensed tax professional without delay. The worst thing that can happen is for your daughter or son to enter adulthood with a blemish on their tax history. A licensed tax professional can help shore up any IRS complication and let your child get back to business as usual.