Every year, it seems, old clients and friends reach out as their kids or grandkids are beginning their “journey” as taxpayers. In reality, it’s the same conversation, but it’s always from the heart, and I wanted to share a few “nuggets” of wisdom here today.
Think of it as a summary of what I’d be telling you if you called to ask for your own granddaughter or your teenager…
First things first – when you take the job, take the time to ensure your listing your tax liability properly on your W4. It might seem simple (and maybe it is to us, but we’ve all been doing this a lot longer than a kid with his first job), but since their employer can’t give them any answers, “our” kid is having to fill out a form that asks some misleading questions…
…And so on.
Now, this should be pretty straightforward, but, before your child goes to fill out their new hire paperwork, take a moment to Google “W4” and look it over with them. Answer their questions, point out a few things that don’t impact them now but might in the future, and so on.
While this helps to ensure they have shared their tax and withholding information with their employer, once they begin to get paychecks, it’s never a bad idea to verify with them that the proper amount is being taken out in their checks. Many, many times we’ve seen where supervisors make input errors with new hires and cause a tax problem for young people.
When tax season rolls around, here’s where most “kids” struggle: They don’t know what they did with their W2 or any other tax paperwork they should have held on to. Today, obviously, this isn’t the challenge it once was, since many companies offer W2s digitally. A new copy is only a few clicks away, but banking information, or, in the case of trust funds, college savings accounts, and other financial accounts, might not be so easy to track down.
The biggest question we get, of course, is, “When to file,” and, while there are a lot of rationales for any answer, our experience for anyone filing for themselves and not using a tax professional for preparation is this: as soon as possible!
I tell them this for two primary reasons: first, they can beat the rush and, if they encounter any problems, they have time to sort out the proper solution. Second, they can get their refund sooner!
Cash in hand is almost always preferable to waiting…
One thing that I don’t see a lot of parents and grandparents doing for those first refund checks is one of the most important: Teaching those kids how to spend it properly. Every year, the streets are filled with young people who have spent a refund check on rims, or a stereo, or clothes. Teach them about putting money to work, not on consumer goods, but on purchases that have long-term value. Sure, they should spend some of it – it’s theirs, after all – but learning financial discipline is a valuable thing that can’t be taught in school.
Of course, if you have any questions, my team and I are ready to help. Reach out if you need it!