Uncle Sam ... Meet Baby!

There are a lot of people who can’t wait to meet your child. Uncle Sam is one of them – and he wants to know everything! There are many details involved in preparing your taxes but don’t forget the smallest member of your family. Your children aren’t just a nice tax deduction, they may need to have their own return! Any income your child receives, whether it’s interest earned on money in the bank or actually money earned from a job, should be mentioned to your tax advisor. Generally speaking, when income reaches a certain amount a return must be filed.

One Return?
In some cases you can include your child’s income on your return in order to simplify (if that’s possible) filing, but beware! The tax rate on your child’s income may be higher on your return than if they filed a separate return. Also, the addition of your child’s income to yours could impact your ability to take deductions and tax credits or even create a penalty. 

It’s Your Responsibility
In most cases the person who files the parent’s return will file for the child unless you happen to have an over achiever in the family who can do a better job. But ultimately, parents are liable for the tax due on their child’s income. Luckily, there are tax-advantaged accounts that can help children save for college or retirement.

Editor's Note: The above information is not financial advice. We recommend you always consult your personal tax consultant to determine how your situation may be affected.

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