Posted on February 3, 2023.

The risk of having kids file their own tax returns.

If you have children younger than 19 years old (or 24 if a full-time student), you should coordinate the filing of their taxes with yours. HOW they file, though, is a matter of tax law.

The problem

Your child is away for college. You try to file your family tax return on April 14th after finally receiving all the required documentation. Unfortunately, your e-filed tax return is rejected because your college student filed their own tax return and received a nice refund. Now you have a mess on your hands. You must file an extension, file an amended tax return for your child, return a refund, and potentially paper file your tax return.

A matter of law

The dependency rules and kiddie tax laws are clear and must be followed. If you have a dependent child as determined by the tax code, you will need to conduct the tax calculations to determine what is taxed at your child’s tax rate and what will be taxed at your higher tax rate. The same is true for which tax return receives what level of standard deductions. This requires coordination of your tax filings with that of your dependent children.

Suggestions

• Remind your independent-minded kids to hold off filing their tax return until consulting with you.
• Claiming oneself as a dependent is not a choice, it is a matter of law. Remind your child there are rules that must be followed before making this tax decision.
• Plan for a dependency shift. Sometimes arranging for a shift in dependent from a parent to a student makes financial sense. If you think this might be true, conduct a tax planning exercise prior to making the change.

Consider using the tax filing process to introduce your young adult to the benefits of tax planning. You never know, it could save you money as well as the hassle of undoing an improperly filed tax return.