A 16-year old's introduction to income tax

One of my sons has been obsessed with owning his own car since he was 14. I have this thing about buying kids cars probably because when I was younger, I had to work to get my first car and pay for everything. So my deal with all my kids is that 1) they can't get a car loan and 2) I'll match them $1 for $1 of what they save toward the car of their choosing.

My 3rd son has really been serious about this. He wants a nice car... he went to work at a fast food restaurant at age 14 and has worked his way up and is now 16. He works every chance he gets and usually works 30-40 hours/week during the school year. He's also maintained a very good GPA in school and is in my office working on homework after work until midnight on many nights. He also fixes computers on the weekends for people.

So yesterday is tax day... and I told him he needed to fill out taxes due to the money he made. He had been claiming "Exempt" on his W4 so he had paid no federal income tax... and guess what? He now has to write a nice size check to uncle sam out of his bank account. Unfortanately, he had the process of saving half of his check and spending the other half on items he wanted (like the newest iPhone, etc.). I've never had to pay for any of this stuff for him since he's been 14.... and now the government wants part of his savings account.

I thought the kid was going to cry. He said it wasn't worth working as other friends of his are getting new cars and they don't even work. Between parents that give their bratty little kids everything they want and the government pitching in the rest via wealth redistribution, it's doubly hard to explain how this is fair other than "It's not fair that you have a job and work hard and other kids don't have jobs. Do you expect them to not have a new iPhone and new car just because you work and they don't?"

We discussed taxes... It's amazing how 45% of the country doesn't pay income taxes but a 16-year old kid trying to save for a car (and not borrow money) pays taxes on anything over $5700. The system really is geared towards "Don't work much and get a car loan" instead of "Work hard, save money and pay cash." He wants a flat tax on what you buy and not what you make. I told him to run for president after college.

The good news is that he now has a clear understanding why I scream at the TV sometimes.

:smt001Its tough when you have a hard working kid, holding good grades, trying to do the right thing, then you have a lot of the kids that think they should have things handed to them, and dont want to work. At least your kid is motivated, will appreciate the monetary things in life, and unfortunately is getting a hard knocks education on uncle sam. It shocks me how many kids out there are just on the road to being lazy bums!

throw his birth certificate away and change his name to jesus martinez! Problem Solved! :huh:

wish2fish said:

throw his birth certificate away and change his name to jesus martinez! Problem Solved! :huh:

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That is crazy how true that statement is:smt021 And he still has "hope" to become the Pres without the BC:huh:

if you get a chance, get and read the book 'Nobody Wants Your Kid' by Morton Creigh Easy and very good read about societal problems and work ethics in the younger generation and what parents should have and can do about it. my heart goes out to your son. I have two daughters , one is in high school and one in middle school and these lessons are very tough to teach and even more difficult to learn when the system we now have is stacked agains hard working individuals. This is particularly irritating to me right now as I just sent in a nice tax check as well. 4x per year actually for those of us who pay quarterly.

My son who is now 21 and a full time engineering student started his own lawn care business when he couldn't get a summer job 2 years ago due to the recession. Same thing he works into the night cutting grass and commuting back the 1 hour to school until his school year ends. We made him setup a LLC, run books and hire an accountant. The idea was to teach him the fundamentals of running your own business. Unfortunately, he too got hit very hard this year in taxes.. and it really set him back with frustration...

You would think we should be encouraging small business.. not taxing them to death.. especially for students and recent grads. The same kids that are also carrying the burden of the high cost of their education.

Gary, You & Mom could be a SUPER GREAT Parents and pay half of that for him. :thumbsup:

At least reward the Boy for being a hard worker. !!. :smt038.

Here in NY you can give each of your kids up to $10k a year as a gift tax free . :smt001

I feel for your son. It's a glorious lesson the world brings to kids at that age now.

I too worked for my first car (no loans, no parental assistance) and I feel my child (if we have one) should do the same. My wife feels differently. She says kids shouldn't have to worry about bills at a young age... just worry about getting good grades. Let me clarify, she does say the child should pay for a cell phone and 'minimal' expenses like gas for the vehicle, but not the vehicle itself nor the insurance. I like your dollar for dollar match. That may be a good way to compromise. What is your plan for the fuel and insurance expense for your son?

Doug

I remember being that age and my Dad sitting me down with a very similar discussion. It's a great lesson, but the feeling of pride that he's doing it on his own, with his own blood sweat and tears is much more rewarding (a sense he'll get sooner than later) than his buddies that break their iPhone and mommy or daddy will buy the replacement after it falls out of the new Wrangler Jeep they bought him.

Good for him. Obama thanks him.

Rather than rail at the tax system, I think you should be congratulated on the work ethic you guys have instilled in your sons.

Take the kid's tax check, invest it for him and you pay his taxes. Sometimes life affords us teachable moments. Use this one to start taking about wealth preservation and investing............and tax avoidance strategy.

Both of my girls worked during high school and paid for 1/2 of their first car as well. Their reaction regarding taxes was that they couldn't believe how much was "missing" from their paycheck.

Don

+2. What Frank said. :thumbsup: . :thumbsup:

Why not have him change his tax status on the W-4? By claiming Exempt he avoids taxes when he gets paid and has more to spend, but the taxes are still due and he has to pay all of them out of the amount he'd saved. Bummer.

He should change the tax status and have taxes taken out of each check. He'll save less and have less to spend each month, but at least the taxes won't come out of his savings all in one lump. Oh, and he'll have to learn to adjust his spending habits now that he'd be living on the smaller take home pay amount.

GFC

Gofirstclass said:

Why not have him change his tax status on the W-4?

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Hopefully he's already done that. Withholding exemptions expire in February each year and one is only allowed to continue to be exempt if there was no tax liability in the previous year.

I argued for years with my father to allow me to change my tax status. He said when I would pay my own rent he'll change my status.

This is also one of the reasons why I like this board. There is a very wide divide of members with all different levels of financial means. I applaud Gary for making his son work for luxury items. I also understand his wife's thoughts on allowing kids to be kids. There is something to be said for buying your kid a 10 year old Honda for his 16th birthday vs a brand new BMW.
I worked from the time I started a neighborhood lawn business when I was 12 years old. I was allowed to drive/ share a car with my siblings. I was a 3 sport athlete and earned an athletic scholarship to a nearby state school. My work ethic was instilled in me when i was young. I watched my mother and father live by example. When I was young we struggled. As kids we had wants not needs. As my father became more successful my mother was able to quit her job and vacations and a bigger house were their rewards. He also retired at 60.
This post has gotten a little off topic but it's a salut to my father and other Dad's like him who take the route less traveled to teach life lessons to their children while they are young.



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He just changed it. I guess if you are 16 and living at home and working hard, you are considered "rich".... It's good to know that the 50% of people that pay income taxes include minors that live at home trying to work hard...

Parents don't pay for taxes on dependents. Kind of curious what would happen to a 16-year old if he told the IRS to shove it... I guess they would "try him as an adult."

Seems kind of odd that the government can demand taxes from a 16-year old (i.e. minor) and yet not allow them to vote...

I believe Gary stated 'W4 filing status' not 'Federal filing status'.

Gary - I read Publication 929. Does your son fit the criteria to be claiming 'exempt' on his W4?

Doug

Have him move into section 8 housing, get cable TV and the latest cellphone on the market. See which life he would prefer?

Four Suns said:

He just changed it. I guess if you are 16 and living at home and working hard, you are considered "rich".... It's good to know that the 50% of people that pay income taxes include minors that live at home trying to work hard...

Parents don't pay for taxes on dependents. Kind of curious what would happen to a 16-year old if he told the IRS to shove it... I guess they would "try him as an adult."

Seems kind of odd that the government can demand taxes from a 16-year old (i.e. minor) and yet not allow them to vote...

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Well, look at it this way...

He's going to grow up, become rich, have a staff of accountants to keep him from paying any taxes and take care of his mom and dad in their old age.

And he'll owe it all to you. Keep up the good work.

I now believe the "cash discount" is the way to do proper business! If they can't control the spending in Washington, we need to lower their income. They don't mind doing it for us, Mike.