Tax day is April 17 this year, the day by which individuals must file their personal income tax returns. Parents of high school students who have yet to file their taxes should take the time to check out education credits they may be eligible for and to explain the tax-paying process to their teens.
The realm of education tax information "can get pretty dizzying pretty quickly," says Gil Charney, principal analyst at the H&R Block Tax Institute. But there are only a few deductions that apply to beneficiaries in high school.
If parents claim a child on their taxes who is below the age of 18, they may be qualified for a Coverdell Education Savings Account. Much like a qualified tuition program (often called a 529 plan), the Coverdell ESA collects money that covers qualified education expenses of K-12 students, such as books, tutoring, and tuition and fees, Charney says. The money in the Coverdell ESA isn't tax-deductible, but most of it can grow tax free.
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Parents whose high school students are taking college-level classes—such as postsecondary or AP courses, should look into the Tuition and Fees Deduction. This deduction formerly only applied to students who had either graduated from high school or received their GED, says Charney. But the policy has changed, and now parents of current high schools students who are taking college-level classes can claim those higher education expenses.
There are stipulations with the Coverdell ESA and Tuition and Fees Deduction. Individuals who make at least $110,000 per year (or an annual $220,000 jointly) do not qualify for the Coverdell ESA, and the maximum deduction for the Tuition and Fees Deduction varies according to the income of the taxpayer as well.
Before their teens have to deal with somewhat complicated tax plans and tricky details themselves, parents can take this opportunity to introduce them to how taxes work, Charney says. If the high school student has a part-time job, he notes, his or her taxes will likely be relatively simple. Reviewing the teen's earnings together is a "very friendly way," Charney says, to introduce him or her to taxes so the child doesn't "develop that fear or aversion to them."
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Discussing taxes together can also clear up any questions about personal finance. An employed teen may think, "Gee, I'm making eight bucks an hour—why am I not getting eight bucks an hour?" Charney says, because they're unfamiliar about why money is withheld from a paycheck.
When teens study their simple personal finance and tax information, they may be prepared to transition into the trickier tax credits for college expenses, and then the complex financial planning that comes with being an adult—perhaps with a beneficiary of their own.
"Being aware of personal finances is a great habit to start developing early," Charney says. "The cost of ignorance grows larger as you grow older and your life becomes more complicated."
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Reader Comments Read all comments (1)
Tracie Joyner of GA 12:01PM March 25, 2012