Rubenacker and Company

Teens and young adults often go into business for themselves over the summer or after school. This work can include babysitting, lawn mowing, dog walking or other part-time or temporary work. When a teen or young adult is an employee of a business, their employer withholds taxes from their paycheck. However, when they are classified as an independent contractor or are self-employed, they’re responsible for paying taxes themselves.

Things to keep in mind:

• Everyone, including minors, must file a tax return if they had net earnings from self-employment of at least $400.
• If they owe taxes, teens and young adults should file their own tax return, even if their parent or guardian claims them as a dependent.
• Teens and young adults can prepare and sign their own tax return. There is no minimum age to sign a tax return.
• Parents can’t claim a dependent’s earned income on their own tax return.
• In addition to income tax, people who are self-employed are generally responsible for self-employment tax as well. It’s like the Social Security and Medicare taxes withheld from the pay of most wage earners.
• Teens and young adults can lower the amount of tax they owe by deducting certain expenses.

Here’s what young entrepreneurs can do to keep on top of their tax responsibilities:

Keep records. It’s good to make and keep financial records and receipts during the year. Recordkeeping can help track income and deductible expenses and provide the information needed for a tax return.

Pay estimated tax, if required. If a teen or young adult being claimed as a dependent expect to owe at least $1,000 in tax for 2022, they must make estimated payments on a quarterly basis. They should be sure to pay enough tax on time to avoid a penalty. They can use one of these forms to calculate their estimated taxes:

• Form 1040-ES, Estimated Taxes for Individuals
• Form 1040-ES NR, U.S. Estimated Tax for Nonresident Alien Individuals

If a taxpayer also has a job where tax is withheld by their employer, they can request that their withholding be increased to cover their estimated taxes from their self-employed income. That way, they don’t have pay estimated tax separately. The Tax Withholding Estimator is a great tool to help wage earners figure out how much they should be withholding.

File a tax return. When tax season rolls around, young taxpayers can review the information and forms, gather their records and e-file their tax return. When preparing to file a tax return, they should make sure to review all their records, including estimated tax they’ve already paid.

If people owe taxes, they can pay electronically through Online Account and IRS Direct Pay. Visit the Payments page of IRS.gov for the full list of payment options.

From IRS Tax Tip 2022-88

Taxpayer who are living and working outside the U.S., they must file their 2021 federal income tax return by June 15. This deadline applies to both U.S. citizens and resident aliens abroad, including those with dual citizenship.

From IRS Issue 2022-22

The IRS began its “Dirty Dozen” list for 2022, which includes potentially abusive arrangements that taxpayers should avoid. The potentially abusive arrangements in this series focus on four transactions that are wrongfully promoted and will likely attract additional agency compliance efforts in the future. Those include charitable remainder annuity trusts, Maltese individual retirement arrangements, foreign captive insurance and monetized installment sales. Visit IRS.gov for more on these first four potentially abusive arrangements.

From IRS Issue2022-22

With the new tax season starting this week, the IRS reminds taxpayers to be aware that criminals continue to make aggressive calls posing as IRS agents in hopes of stealing taxpayer money or personal information.

Here are some telltale signs of a tax scam along with actions taxpayers can take if they receive a scam call.

The IRS will never:

• Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes.
• Threaten to immediately bring in local police or other law enforcement groups to have the taxpayer arrested for not paying.
• Demand that taxes be paid without giving taxpayers the opportunity to question or appeal the amount owed.
• Call unexpectedly about a tax refund.

Taxpayers who receive these phone calls should:

• Record the number and then hang up the phone immediately.
• Report the call to TIGTA using their IRS Impersonation Scam Reporting form or by calling 800-366-4484.
• Report the number to phishing@irs.gov and be sure to put “IRS Phone Scam” in the subject line.

More information:
Tax Scams and Consumer Alerts
Report Phishing and Online Scams

From IRS Tax Tip:2022-15