(UPDATE: The giveaway is now closed. We have our winners! See the comments for more info.)
I think one of the best things that you can teach your kids is the value of money. Obviously, parents are going to disagree about the specifics but the basics - what it is, how you use it, the importance of spending or saving it wisely - are pretty universal.
When it comes to kids saving and earning money, it may also be time to talk kiddie tax. The kiddie tax is the tax imposed on kids at the parents' tax rate and not at the lower rate of the child when income reaches certain thresholds. The rules can be tricky and depend on a number of factors, including the age of the children, as well as the amount and source of the income.
If kids work for their money, it's generally considered earned income; tips for servers are also considered earned income. The general rule for kids (and dependents) is that if income is earned and that amount is less than the filing threshold (it's $6,100 for 2014), there’s no need for that child to file a federal income tax return; a quick caution, though, that if a taxpayer is subject to self-employment tax, the threshold is generally $400 of net earnings (more on filing requirements in a future post).
The rules are different when income is unearned. Unearned income is generally investment income, like income from dividends and interest. For 2014, children under the age of 18, or under the age of 24 while a full time student, the first $1,000 is considered tax-free and the next $1,000 is taxed at the child’s rate. Unearned income over $2,000 is taxed at the child’s parents’ tax rate. Income which is taxed at the child’s parents’ tax rate does not necessarily mean that the income has to be included on the parents’ tax return; the child can opt to file a separate return (and in fact, that can sometimes be preferable for all kinds of reasons, including the AMT).
As of last year (2013), a child may also be subject to the new Net Investment Income Tax (NIIT). NIIT is the much maligned 3.8% surtax for high income taxpayers. When it comes to kids, the NIIT applies to the lesser of net investment income or the excess of the child's modified adjusted gross income (MAGI) over the threshold amount (more on the NIIT here).
That, of course, assumes that everything is easy. Sometimes, arrangements aren’t so clear cut. If the child’s parents are divorced, generally, the kiddie tax is reported on the custodial parent’s tax return. In the event that the child’s parents are unmarried – and have never been married to each other – or if the child’s parents are married but filing separate, the kiddie tax is calculated using the parent’s return with the highest taxable income.
Keep in mind that these rules apply to children who are dependents. Those who are not dependents because of their age or filing status (such as children who are married), level of support or those who are emancipated have a different set of rules.
And all of this talk about saving brings us to today's giveaway: recycled coin pouches from TerraCycle, the world’s leader in upcycling and recycling previously non-recyclable post-consumer waste that would otherwise be destined for landfills. All of Terracycle's affordable, innovative products are repurposed from used packaging and products and will make great back-to-school supplies - all items are available for purchase at DwellSmart. Five readers will each receive a nifty coin pouch crafted from a retired US Mail Bag: perfect for saving those coins!
To enter to win, just post a comment about how you used to save your money as a kid. I'll go first to get you started: I had a clear glass piggy bank that I had to smash to empty.
Entries must be posted in the comments section for this blog post in the space below by 10:00 p.m. EST on September 27, 2014. It's just that easy. I’ll choose five winners randomly (using a number generator) out of all of the qualifying entries.
Be sure and read the fine print for more rules because, as you know, I’m a lawyer and I like rules:
Don’t panic if your comment doesn’t show immediately. If it goes to moderation because, for example, you’re new here, the time stamp on your comment is what counts. If you have difficulty registering, please send an email to blogadmin@forbes.com and copy me (tech@taxgirl.com) so that I can help if I need to/can.
I love my
Twitter followers and my Facebook fans but for this particular giveaway, tweets and Facebook comments will not be counted. Ditto for emails. You must leave your comment on the blog at this post.You can enter as many times as you like but you must leave a different answer each time you comment.
Offensive comments or comments that otherwise violate the comment policy will be deleted and will not be considered valid for purposes of the contest. Similarly, pingbacks and other links will be disregarded for purposes of the contest.
I will need your full name and your email address: be sure to use your real information when you register to leave a comment. I won’t publish your email address but I do need contact information for the winning entry. If you win and I can't reach you, it's a forfeit.
Due to shipping considerations, you must have a valid United States address. Sorry, Canada, eh?
I respect your privacy and I will not send you anything unrelated to your entry in this contest. By entering the contest, you agree that I may post any part or all of your submission including your name as a part of the contest announcements or promotions, with the exception of your email address.
Like Judge Judy, my determination is final.
Prizes are provided directly by our sponsors and are not exchangeable or redeemable for other prizes. Sponsors do not pay for placement and do not receive any compensation for contributions – neither do I! I have no affiliation, paid or otherwise, with any of our sponsors.
If you aren't allowed to participate in giveaways because of the laws in your state or your age or an agreement you've made with your mother, consider this giveaway not applicable to you. In other words: void where prohibited or restricted.
Finally, the giveaway is about me, me, me. It’s not affiliated with or endorsed by Forbes. So leave them out of it, okay?
Comment away! And thanks for participating in Back To School 2014!
