What should your teen know about taxes?

Death and taxes - - neither can be avoided. Even if your teen isn't working, you should start teaching your teen about taxes, both their practical application and philosophical foundations.

First to the practical - - every teen should understand that anyone who works has to pay income taxes. In addition, he/she should know that employers take more than income tax out of paychecks, but also Social Security and Medicare. If your teen is working, then he/she will have to fill out some tax forms, even if he/she is just doing the typical babysitting or lawn mowing gig. So he/she should get familiar with the income tax return forms, both on the federal and state level. He/she should also know how to fill out a W-4 form, which his/her employer requires to document your teen's tax status. If your teen is self-employed (yes, the government considers babysitting, lemonade stands, etc., as self-employment), your teen will have to know about Schedule C, which lets the government know your teen is self-employed. If your teen is working as an employee, he/she should understand how to read his/her paystub and understand what deductions are being taken out (how much and what for). The last tax your teen should definitely know about is sales tax, especially since this one can seem stealthy.

Since taxes are unavoidable, you also want to teach your teen about the philosophy of taxes. He/she should know that taxes are the government's primary source of income and are used to fund government activities. Your teen should understand there are both positive and negative sides to taxation. His/her taxes help pay for police and firefighters - - these are all good things. However, taxes take money out of the private sector, which could be used as individuals choose, such as for savings, investment or purchasing. When the government taxes, it's shifting resources out of the private sector for public use. When your teen understands this, he/she can better appreciate both the potential advantages and risks of a government's power to tax.