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Teaching Your Kids About Taxes

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Talking taxes with your kid may not sound like the most exciting activity in the world, unless you both really like numbers and percentage signs. But it could be an important part of helping them understand how the real world works.

Taxes are a fact of life and your child has likely already experienced some form of them, perhaps even during their last trip to the toy store. Helping kids understand this very adult thing could help your child with their own financial independence in the future. Here are a few ways to get the conversation going—and have fun doing it.

Break No Bones About It

My father always said, “the earlier the better,” when it came to teaching me life’s lessons. That’s why I walked at 9 months, rode a bike at 4 years and broke my first bone at 5.

Now, it’s up to you to decide when your child is ready for a tax lesson and how deep you dive into this topic. But having these conversations earlier probably won’t hurt either. At least, no more than a broken bone, right?

For the Grater Good

To make it easier on you and your student, stick with the simple stuff first. You can explain how we share a percentage of our money and keep the rest for ourselves, much like using a cheese grater. A little shredded cheese for the good of the public, and the block of cheese for us.

One of the more helpful things you can do is give them specific examples of what taxes pay for, like the roads in your neighborhood, their school and the park where you take them to play. They might enjoy knowing their favorite playground was built with these funds, as well as other really cool green spaces they love visiting. When you drive by the fire department, you can point out that taxes pay for the building, the firetrucks and the firefighters who help keep us safe.

Try making a game out of it and have them point out things they think taxes pay for. Or take it to another level by levying your own taxes in your household. Each person can contribute to a jar each week, and at the end of a certain timeframe, you all decide what to do with the money.

A Whole New Bill Game

After you’ve knocked out the basics, it’s time to differentiate the types of taxes you pay and where they go. You can get into a little more detail and play around with some calculations. For instance, to demonstrate how sales tax is paid, show them how to estimate the total cost of an item using your local percentage.

When it comes to property tax, a few important things to mention are how property value is assessed, how often and how it can change over time. This is also a great opportunity to explain how property and sales taxes go toward the local community and how those decisions are made at the local and state levels.

Here, you can give examples of the local impact, whether it’s a new beautification or streetscape project in your area, or the city’s new bulk removal truck with the big arm that’s so entertaining to watch.

Piling Your Taxes

Let’s not forget income tax. (How could we?) Even in a digital world, there’s no hiding those stacks of paper during tax season.

This is where you can really get into the fine print, particularly with older kids around high school age. If they had a summer job, they’ll be joining you in this annual endeavor, anyway.

So, while you’re filing away, show them an example of a pay stub and the forms you need to file your tax return. Let them know that at the start of a new job, you have to decide how much tax to take out of each paycheck and that it’s based on how much you’re anticipating paying at the end of the year. If you pay too much, you’ll get that coveted tax refund. If you pay too little, you’ll be cutting a check to the IRS. But the idea is to be on target.

This is also a great opportunity to share some of the bigger items state and federal income taxes help pay for, whether it’s a program you support, a government building you admire, an economic development project you like or even a festival you attend. The IRS offers different lessons and activities that touch on a variety of topics, from history and the legislative process to filing and the impact of taxes.

No matter when you decide to share the world of taxes with your child, it’s a great opportunity to have a little fun with the information and provide valuable skills for their future. This will better equip them for handling their own finances one day and limit the number of surprises they face. Putting value on where all that money goes might even make it a little easier to let it go this year.

This article is for educational purposes only, and is not intended to provide medical or legal advice, or to indicate the availability or suitability of any product or service for your unique circumstances.

Capital One does not provide, endorse, or guarantee any third-party product, service, information or recommendation listed above. The third parties listed are solely responsible for their products and services, and all trademarks listed are the property of their respective owners.

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