Teaching Your Kids About Taxes

December 5, 2013 by in category Taxes tagged as , with 0 and 0
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How to Teach Your Kids About Taxes

They say the only things that are inevitable are death and taxes, and of those two things it’s taxes that occupy much of our time and our lives. There are a lot of disagreements when it comes to taxes, but at least some taxes are necessary in order for our society to run smoothly.

However you feel about taxes, explaining their sources and functions to a child works best if you can be straightforward and minimize editorializing with your own political views, because this will only cause more confusion. A good place to start is by explaining sales tax, income tax, property taxes, and taxes on gifts or inheritances. These are likely the taxes that will have the biggest impact on a child’s life.

If your child gets any kind of allowance, and buys things for themselves they will pay sales tax just like any other consumer. Have them add up the cost of items that they buy with a calculator, and point out that the price quoted by the cashier is somewhat higher because of taxes. Explain that sales tax is charged mostly as a fixed percent, and that some cities will add on their own tax on top of a state tax to pay for local expenses such as a stadium or parks in the area.

When a child starts talking about getting their first job, it’s important to dig deeper into the concept of income taxes to avoid paycheck shock and that inevitable question, “Who’s this FICA guy and why is he taking my money?” In addition to explaining FICA taxes and how they are designed to help provide a baseline income in case of retirement or disability, also explain state and federal taxes and the services available in your community, such as political representatives, police, the post office and construction road crews. All of these people need a paycheck for the jobs that they do, and since they are paid by the government the government needs to collect taxes in order to pay their wages.

Income tax is somewhat more difficult to explain than sales tax because the amount paid depends on how much money is made, and any recognized obligations, such as dependents, that are recognized by the IRS. If you make less than the government has decided you need, you will not be charged state and federal income taxes, although FICA taxes will always be taken out. The next bracket pays a greater percentage of their income, and the wealthy pay an even higher percentage.Some things can reduce the amount of taxes paid, such as some charitable contributions or making contributions to your retirement account.

How nice your neighborhood is, and how good the schools are in the area is partially determined by property taxes, so different cities have different taxes on a home that is owned. If you rent, the tax you are charged is a renter’s tax, and if your income is below a certain amount, you can actually file for a tax credit, which means money is returned to you on an annual basis.

Regardless of the means that taxes are collected, the state and federal government should identify how that money is spent, and although taxes must be paid whether you personally agree with that allocation or not, it is your right to use your vote to elect officials who you feel represent your interests and the interests of your community, and will see that more of your taxes are collected to be used for causes you support.

Sources: http://www.learnvest.com/2013/04/3-good-ways-to-teach-kids-about-taxes/

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