From the February 2008 issue of Wealth Manager Web • Subscribe!

February 1, 2008

The "Kiddy" Tax

I told my kids when they graduated from college and got their first real jobs I would no longer do their taxes. I still pay their cell phone bills (we're on a family plan), and I even pay their car insurance (for the first year only).

However, I won't do their taxes. They've decided to leave home and live in another state. Their mother feels abandoned (empty nest syndrome), and me? I just tell them, "Ok big shots lets see you do your own taxes now!"

I'm not evil. I do my mom's taxes. She's 92 and has Alzheimer's. But for some reason Uncle Sam still needs to get a few dollars from her every year. (And we're the honest ones. We never transferred her assets years ago so that she'd qualify for Medicaid.) You think I could just write an addendum to her 1040: "We're saving the government $60,000 a year. So stop taxing my mom's meager pension and the interest she earns on the few remaining CDs she has."

And then we have to pay Pittsburgh city tax. It could be real simple; and they could just take a percentage of the state tax. But no, they need their own forms, and the tax software doesn't cover our municipality. So I have to do it by hand.

I've always wondered how taxes work in other countries. In the Former Soviet Union, does Putin release a copy of his 1040 to be reviewed by all the newspaper reporters and bloggers?

In preparation for this article I did some research (I googled), and found out that we've been paying taxes for a long time. I thought personal income taxes started in 1913 when the 16th Amendment was passed. But actually, people had been paying taxes on their personal income for decades before that. The amendment was passed to get around a Supreme Court ruling concerning states' rights. (Remember when Republicans were for states' rights? Now I'm really dating myself.)

So the issue for me isn't paying taxes but that the system is so darn complicated. In retrospect, I should've forced my kids to fill out their own 1040 EZ form at 14, when they started working. It would have been a great "personal growth experience." My son had worked as an aide in an adult day care program, and they paid him as an independent contractor. So, of course, he had to pay even more taxes.

I hit the roof. I complained to the day care center. They told me to talk to the university that was actually funding the program. The university researcher said he couldn't put the aides on the university payroll because they... Suffice it to say, the explanation went on and on.

I called the IRS. "My son is being paid as independent contractor, instead of as a regular employee. What do I do?" Their answer: I needed to complete two forms and be willing to report the employer to the wage and hour division of the Department of Labor. Also, my son, not I, would have to sign an affidavit confirming that he met all the requirements of a regular employee.

He would still have to complete his 1040 using schedule C to report his income. If he won his case, he would receive a refund. And it usually took from 12 to16 months to investigate these types of complaints. But since his claim was for less then $2,400, it might take up to three years. I gave up.

Imagine if my 14-year-old son had to go through that experience? It would have made him a man. (Turning 13 and becoming a man at his bar mitzvah only brought him more gifts, not adult wisdom--sorry, Rabbi.)

Then he could have used his experience filling out his 1040 as his college essay. I bet the admissions director at Harvard would have found his story inspiring. Instead we enrolled him in an intense Spanish language class so that he would be able to travel to Belize for the summer and clear plastic bottles from the beach. All of this so that his life experience essay to Harvard would be outstanding. He still didn't get into Harvard and we learned that English--not Spanish--is the official language of Belize. (It used to be called British Honduras.)

I wonder if Bill Gates' foundation would be interested in my approach. He spends millions to help at-risk kids find their way back to a healthy life style. Usually they send the kids down the Snake River in a rubber raft to test their independence and ability to persevere. I think having these kids do their grandma's taxes would be a more life altering experience.

And they'd have to do it with a pencil and a calculator, no software allowed. In order to graduate, they'd have to depreciate a car that was initially purchased for personal use but then was switched to business usage.

For extra credit, make it a hybrid.

Hesh Reinfeld (www.heshreinfeld.com) is a Pittsburgh-based writer who finds humor in business.

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