Who Needs to File?
It may seem obvious, but just about everyone with income needs to file a return. It's important to check whether you, your kids, and even your parents are required to file. Search the IRS website using the term “Should You File a Tax Return?” for a page on current income limitations on who needs to file and who doesn't.
Kids' Tax Returns
Your kids may need to file if they have income — earned or investment — in their name. This is the case whether or not you use them for an exemption on your tax return. Under the “kiddie tax” rule, the IRS says that the child pays at the tax rate of the custodial parent. This is easy enough to deal with if you're married, but divorce agreements often state that parents will alternate taking the kids as a deduction on their tax return. Don't let tax planning steer your divorce settlement, but you can avoid needlessly wasting tax money by considering each parent's different tax and income situation when you negotiate.
Tax laws change every year; be sure to check the IRS website for updates. You're responsible for the information on the tax return you sign. Read it and ask questions if you don't understand something. Beware of tax preparers or information services that advertise to reduce your tax burden through confusing tax strategies.
Are Your Parents Dependents?
Many people support their parents and yet don't realize that, for tax purposes, their parent is their dependent. If your parent has very low non–social security income and you provide more than 50 percent of his support, he may be your dependent. Check the IRS website to confirm all of the IRS guidelines. If it turns out that you can't deduct your parents as dependents, you still may be able to deduct medical expenses you paid on their behalf.
