Many young people have misconceptions when it comes to taxes and finances in general. Whether it’s parents passing along misinformation, peers, the internet, or any number of other sources; it’s important to cover your bases so that you don’t end up with a nasty surprise come tax season.
When you start working your first job and making some money, you have a responsibility to understand how it works. Making bad decisions about tax can be very costly. With that said, here are some things that people usually get wrong:
1. If You’re Self-Employed…
Whether you’ve started a lawn care business, or you’re shoveling snow, or you’re fixing computers for family or friends, self-employment gives you the ability to have a flexible schedule which is great when you’re in school.
When you work for someone else, you’ll get a paycheck and a certain portion of your income will be withheld for taxes and other things. When you’re self-employed, however, it’s up to you to put money aside to pay to Uncle Sam (or your local government) when it’s time to file.
If you spend as much money as you make, you’re in for a rude awakening when you end up owing a lot of money on your taxes because you didn’t put any away ahead of time.
So, don’t make this all-too-common mistake.
2. Writing Something Off Doesn’t Make it Free
Every now and then, you’ll hear a new business owner say something like, “Yeah, I was going to get a modest used truck for around $5,000 but I decided to get a brand-new, decked-out one for $80,000 since it’s a write-off.”
Even if you can write something off against your income, you’re still paying for it, you’re just not paying tax on the income it took to purchase it. You’re not getting a free truck, a free computer, or a free anything. Now, obviously, writing things off is a big advantage of owning a business, but it’s not really going to personally enrich you if you’re being honest on your taxes (which you should always be.)
3. There Are Great Resources to Help You
Don’t be afraid to ask for help when it comes to this type of thing. Many cities have programs to help young entrepreneurs. Some areas have professionals who volunteer their time to help young people with their businesses and taxes as a service to the community, and there are plenty of professionals who can help too.
But how do you know who you can trust? There are all sorts of rating sites that can give you a good idea as a starting point. Online reviews are not the be-all and the end-all, but they’ll definitely help point you in the right direction and give you some insights on who to reach out to and who to avoid. For example, the National Tax Experts BBB has a very high rating from helping people sort out their tax issues.
4. Youth Have To Pay Taxes, Too
If you’re under the age of majority, but still working enough to exceed whatever the exemptions are in your area, you still have to pay taxes. Kids and teens that earn a large enough income have to pay their share, there’s no way around it.
So, being aware of this and planning for it is absolutely crucial. You don’t want to start your professional income-earning life in the hole to the taxman, because it can be very tricky to climb out from tax debt.