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10 Helpful Tax Lessons for Kids

Um, Dad, why does the government want our money? © Randy Faris/Corbis
Um, Dad, why does the government want our money? © Randy Faris/Corbis

Kids are the worst, right? They're always like, "I'm too busy to explain to you why something exists," or "Please don't bother me with your legitimate questions about the things I'm doing."

Oh, wait. That's adults. Those guys are the worst.

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So let's give kids a break and give them what they ask for: a few lessons on why the heck the grown-ups are spending their evenings poring over receipts and asking each other questions like, "Wait, can we write off that lobster we bought for Beverly if I complained about work the entire dinner?"

We'll start with the basics. Who, precisely, are adults helping when they pay their taxes?

Initially all those returns (and payments) are sent to the IRS. Eventually they'll fund things like national defense and health care. © Roger Ressmeyer/Corbis
Initially all those returns (and payments) are sent to the IRS. Eventually they'll fund things like national defense and health care. © Roger Ressmeyer/Corbis

Now that we've brought it up, all of us might need a refresher on what taxes are for. Teachers, right? Or ... streets? Keeping a sweet HBO cable package at the White House?

There's actually a really cool tool that can help you show the youngsters where tax money goes. The White House website offers a "Tax Receipt" that shows just how much of your money went where. If, for instance, you're paying an estimated income tax of $1,776 — so patriotic! — you can see that the bulk of your money is going to national defense, health care, and job and family security. Those three make up about 70 percent of your tax bill. The rest includes paying for veterans' benefits, science programs, natural disaster relief and agriculture — pretty much the gamut of government activities [source: White House].

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As that mammoth queue of people lined up at the post office on Tax Day illustrates, we all pretty much have to pay taxes, even kids sometimes.  © Rudy Sulgan/Corbis
As that mammoth queue of people lined up at the post office on Tax Day illustrates, we all pretty much have to pay taxes, even kids sometimes. © Rudy Sulgan/Corbis

One question kids might have come April: Why, exactly, do you have to pay taxes — and do they have to pay them, too?

It's helpful for kids to understand that virtually every American citizen is responsible for paying taxes; Mom, Dad, Grandma and John next door are all going to put a return in every year. Remember to explain that plan is by design, so that no person is more or less responsible for government saving and spending. We'll get into some hot tax topics later, but it's probably fair to mention that some people strongly believe certain people or corporations should pay more taxes that others.

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Explain that only people who make very little (under $10,150, or $6,200 if they're a dependent, if you want to get into specifics) are able to sit out a return. Sure, juveniles might have to pay taxes — but only if they're making a lot more money than most kids do a year.

U.S. federal tax dollars in action! © Lucas Jackson/Reuters/Corbis
U.S. federal tax dollars in action! © Lucas Jackson/Reuters/Corbis

It might be a good idea to specify that people pay several kinds of taxes and that our April obligations are just one of the group. We already talked a little bit about how taxes are used, and that might come in handy when you're explaining what federal income taxes entail.

While we'll discuss how local taxes are levied to pay for new schools, roads and parks, you can also explain that our national infrastructure also needs to be funded. National defense, for example, means paying the salaries of the military who protect us as well as buying the airplane fuel that flies the military to their bases.

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Health care taxes help pay for those who can't afford doctors and generate funds for the CDC to help prevent or respond to an outbreak of infection. We even provide humanitarian protection to other countries as part of our federal tax obligations.

Kids might have strong opinions on what should and shouldn't have sales tax, like, say, candy. © Steve Hix/Somos Images/Corbis
Kids might have strong opinions on what should and shouldn't have sales tax, like, say, candy. © Steve Hix/Somos Images/Corbis

If you really want to prove your point about tax responsibilities, you can explain to the kids that they've probably been paying taxes for as long as they could walk up to a cash register. In other words, people pretty much pay taxes in some form or another whenever they make a purchase.

Almost all states (and the District of Columbia) also have a sales tax, which is added to the cost of things we buy. Just like the federal government, states have to figure out some way to pay for their infrastructure — and on average, they need about 20 percent of their budget to come from sales [source: Williams and Shadunsky].

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Of course, every state has different rules for sales tax. Some tax foodstuffs fully, some don't tax it at all and some offer lower sales tax rates or rebates. It might be a good opportunity to ask the little ones about some more controversial taxes — for soda or cigarettes, for instance — to see if they think some products should be taxed more than others.

If you hit it big at the casino, Uncle Sam is going to be celebrating, too. © Eric Raptosh Photography/Blend Images/Corbis
If you hit it big at the casino, Uncle Sam is going to be celebrating, too. © Eric Raptosh Photography/Blend Images/Corbis

For a lot of kids, winning a prize is one of the great delights. What better way to crush their small adolescent hopes than to cruelly explain to them that Uncle Sam expects a cut of the profit? And while we don't recommend injuring the tender feelings of children, it might be a good way to teach them that it's not just hard-earned cash that is subject to tax: The government knows loads of different ways to collect revenue.

So give your kids a list of some of the different revenue-producing taxes that people can expect — if you have retirement investments, for instance, or even if you win money gambling. (Can you talk about gambling with a kid? If you're broaching tax topics, you're probably a brave soul who's willing to tackle anything.)

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You may, at some point, need to tell your kid that Uncle Sam is not, in fact, a real person. © Mike Segar/Reuters/Corbis
You may, at some point, need to tell your kid that Uncle Sam is not, in fact, a real person. © Mike Segar/Reuters/Corbis

By now, your children might be thoroughly frightened that an actual figure named Uncle Sam is lurking under the bed, waiting for the opportunity (and he'll take any that's offered) to grab their money. It might be a prudent time to bring up some ways that the tax burden can be lowered on federal returns.

And hey, the kids are practically the stars of the show on this one. Let them know that for each little one, parents get a whopping $3,950 taken off their income, lowering their entire tax bill.

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It might also be worthwhile to give them a small primer on deductions in general. Start by explaining that the government provides a standard deduction depending on filing status, adding that some people elect to itemize all their expenses in hopes of getting a bigger cut taken out of their tax bill.

Sure, some adults do their own taxes, but many more need help, whether from another person or from the computer. © Jonathan Ernst/Reuters/Corbis
Sure, some adults do their own taxes, but many more need help, whether from another person or from the computer. © Jonathan Ernst/Reuters/Corbis

Hopefully you haven't given the kiddos the impression that taxes are a horrible, daunting task that no sane person could complete. After all, it's never been easier to access tax information online, and tax preparation software has provided invaluable guidance to Americans looking to complete a return with as little second-guessing as possible.

Still, the kids might be surprised to learn that most people do their own taxes. Teach them some of the different ways that people fill out their returns: online, by hand or with the help of a tax professional. Let them know some of the reasons people might choose one method over the other, and make it a lesson about how different returns can be. Some folks might have complicated income or investments that make it worthwhile for more guidance, while others have straightforward earnings that are pretty simple to complete themselves.

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You'd be stacking up some seriously high piles of coins for the IRS if you don't pay. © JGI/Jamie Grill/Blend Images/Corbis
You'd be stacking up some seriously high piles of coins for the IRS if you don't pay. © JGI/Jamie Grill/Blend Images/Corbis

Let's be frank: It's the question that kids and adults alike are pretty eager to get to the bottom of. How bad is it, exactly, if you don't pay your taxes — or even if you pay just a little less than you should?

The answer, of course, is that it can be really pretty terrible. While the youngsters might not fully grasp the inconvenience of an audit, you could certainly explain to them that if there is a mistake on their taxes, the government will make them go through their homework — line by line — to ensure every single item is correct. The punishment is both paying more taxes than they originally paid — plus a penalty — and the time-consuming cost of the audit itself.

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And of course, you will have to pay any unpaid bill, plus penalties. It's a little like getting your allowance taken away for bad behavior — and then getting charged extra on top.

Right. That's sort of how taxes have been making people feel for centuries. © Larissa Veronesi/Westend61/Corbis
Right. That's sort of how taxes have been making people feel for centuries. © Larissa Veronesi/Westend61/Corbis

Let's not mince words: Adults fight like cats and dogs over tax issues. There's no reason to pretend that tax topics aren't a political issue, but you can certainly drive home the point with a familiar history lesson — while staying away from the specific platforms of liberal or conservative politicians. (Although many kids might be into learning the differences.)

The Boston Tea Party might just be the best way to illustrate to the kids how taxes have been an enormous source of controversy since the very beginning of the nation. If you need a little refresher, here's the gist: The British government was taxing the American colonists on all sorts of things, but they were especially peeved when their staple beverage — tea — was being taxed upon entry into the colonies. They decided to boycott the imposed tax by throwing the tea into Boston Harbor, protesting the customs fee they were obligated to pay to a country many no longer wanted to pledge allegiance to.

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Look kids, isn't that child tax credit great?! © Mareen Fischinger/Westend61/Corbis
Look kids, isn't that child tax credit great?! © Mareen Fischinger/Westend61/Corbis

The best tax lesson you can pass on to the kids? Show by example. Let them sit in on a few minutes of your tax return preparation. Give them a look at what income can be considered a tax liability and how other wages can help them move closer to a bigger refund.

And perhaps give them a real-life lesson in how tax works by asking them to divide up their money like Uncle Sam would. Ask them if it's better to put aside a little "tax" for every dollar they earn or if they would prefer getting a big bill at the end of the year. Ask them for suggestions about things they might be able to get tax "breaks" on, just like Mom and Dad get a bit back from the government for having kids or buying a house.

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Author's Note: 10 Helpful Tax Lessons for Kids

It seems silly — on the surface — to think that kids would want to learn about taxes, but give the young ones some credit. They might wonder why prices are different "as advertised" than they are when they're rung up on the register, for instance. While it might be a chore for you, taxes might seem downright interesting to someone who doesn't have to file a return every year.

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Sources

  • IRS. "Understanding Taxes." (Nov. 10, 2014) http://apps.irs.gov/app/understandingTaxes/
  • Kids.gov. "Explaining Taxes to Students Lesson Plan (Grades 3–5)." US General Services Administration. Oct. 30, 2014. (Nov. 10, 2014) http://kids.usa.gov/teachers/lesson-plans/money/explaining-taxes-to-kids/index.shtml
  • Massachusetts Historical Society. "The Boston Tea Party." 2008. (Nov. 10, 2014) http://www.masshist.org/revolution/teaparty.php
  • Rueben, Kim and Yuri Shadunsky. "State and Local Tax Policy: How Do State and Local Income Taxes Work?" Brooking Institution. May 8, 2013. (Nov. 10, 2014) http://www.taxpolicycenter.org/briefing-book/state-local/specific/sales.cfm
  • Tax Ranger. "Teaching Your Children About Taxes." Liberty Tax–Tax Ranger's Blog. Aug. 23, 2013. (Nov. 10, 2014) http://www.libertytax.com/taxlounge/blogs/tax-ranger/archive/2013/08/23/teaching-your-children-about-taxes-3969.aspx
  • TurboTax. "Does Everyone Need to File an Income Tax Return?" Intuit. 2013. (Nov. 10, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Return/Does-Everyone-Need-to-File-an-Income-Tax-Return-/INF14399.html
  • TurboTax. "Tax Exemptions and Deductions for Families." Intuit. 2013. (Nov. 12, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Family/Tax-Exemptions-and-Deductions-for-Families/INF12053.html
  • White House. "Your 2013 Federal Taxpayer Receipt." United States Government. April 2014. (Nov. 10, 2014) http://www.whitehouse.gov/2013-taxreceipt
  • Williams, Roberton and Yuri Shadunsky. "State and Local Tax Policy." Brookings Institution. May 7, 2013. (Nov. 10, 2014) http://www.taxpolicycenter.org/briefing-book/state-local/revenues/state_revenue.cfm

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