First time filer with limited income? Tax tips for parents, guardians and filers
Are you the parent of a first time filer with limited income? 1040 EZ may be your child’s solution.
As a parent you may be reading this with interest as your child is growing up and facing for the first time – his or her income tax return.
If your child has been working a part time job and has his first W-2, this is a good year to sit down with him or her and go through this checklist. The IRS publishes an informative “Tax Rules for Children and Dependents” however, here in a nutshell are the four rules for determining the status of your dependent:
1 Make sure your dependent has a Social Security Number – you’ll need it to file
2 Your dependent has to be under age 19 at the end of the year or under 24 at the end of the year if a full time student
3 Permanently disabled at any age
4 As a parent or guardian, you must provide at least 50% of the dependent’s support and they must live with you at least half the year.
There are two types of income, earned and unearned. Investment income is considered unearned income. Read these three rules for and determine which way to declare your dependent’s income.
1 If a dependent has investment income above $1050, is under 65 and not blind (in which case different rules apply)– it is called unearned income – it should be declared and filed.
2 If a dependent has earned income above $6,350, is under 65 and not blind (in which case different rules apply) – it should be declared and filed.
3 If a dependent has a combination of earned and unearned income, you must do the math on an IRS worksheet, entering all earned income and adding $350. On the next line of the worksheet place the amount of investment income (over $1050 which is the minimum.) Next line – place the larger amount. Then compare that figure to the maximum of $6,350 and on the next line place the smaller of the two amounts. Finally place the gross income of the dependent and if this is larger than the previous line – an income tax form must be filed. The worksheet is located within IRS Publication 929, Tax Rules for Children and Dependents.
Are you a first time filer? You may be able to use a simple 1040EZ filing tool.
As a first time filer, preparing to file your first return (with or without the help of Mom or Dad or your guardian) get yourself organized starting with January 1 of the year you will file.
You may still be dependent in some ways, particularly if you are in school, however, show some initiative and help your Mom, Dad or guardian out, by being ready to file.
Make sure one or both of you have copies of the following:
- All w-2 forms from employers. If your dependent was an enterprising sole proprietor or an independent contractor then he/she should have received a 1099 form from any employer who paid more than $600 in the calendar year.
- A notice from a brokerage firm or company, bank or trust organization which reports all investment and or bank income (1099 – INT.)
- Unemployment income (yes, it has to be reported also) for which your dependent should receive a 1099-G.
- Lottery winnings or cash prizes.
- Scholarships that award money to help pay for room and board (tuition is not taxable but these are taxable.)
When those bank statements and w-2s start arriving in the mailbox – be prepared and save them in a folder.
Pull out all of your information, have your social security card available and be prepared to file as soon as you have received all of these notices in the mail.
Finally, Parents or Guardians – understand that if your dependent has income greater than the standard deduction for a single filer, which is $6350 – he/she has to file their own tax return even if they were claimed as a dependent on your return.