Not filing taxes for an older child with a part-time job:
“Parents forget that an older child might have a tax filing requirement,” says Meighan, even if that child is still a dependent. And failing to file that older child’s taxes could mean losing out on a refund, because teens often don’t earn enough to have any tax liability, even though their employers have withheld taxes. “To get that money back, they have to file a return,” adds Meighan.
Failing to take advantage of tax-advantaged savings plans:
Most adults have never heard of 529 college savings accounts, which allow parents to invest after-tax money and grow it tax-free as long as they use it to pay for tuition. Coverdell education savings accounts, which come with strict contribution limits ($2,000 a year) as well as income limits, also offer tax advantages. Similarly, many parents forget to put pre-tax money aside (up to $5,000) into flexible spending accounts offered through their employer to pay for childcare expenses.
Skipping education write-offs:
From the American Opportunity Credit to the Lifetime Learning Credit, there are many tax benefits that help alleviate some of the cost of paying for college. Parents often forget that they can claim student loan interest on their own taxes if the college student is still a dependent—even if the college student is the one paying the loan interest, says Meighan.
Bradford adds that many parents don’t realize that a number of states allow deductions for contributions to college savings plans. In New York, she says, residents can write off $5,000 for single filers and $10,000 for married joint filers. She suggests checking savingforcollege.com to see if you qualify.
[See Don’t Let Your Kids Ruin Your Retirement Fund.]
Repeating classic errors that all taxpayers make:
Eric Smith, IRS spokesman, says the most common errors include forgetting to sign returns, just one spouse signing it, forgetting to attach a W-2 form, failing to use enough postage, and writing the name and address on the mailing envelope illegibly. “Take advantage of computer technology, and most of those mistakes go away,” he says.
Kimberly Palmer (@alphaconsumer) is the author of the new book Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.
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