If your teen is holding down a summer job this year, then you and your teen are at a crossroads in your income tax journey. Your child is probably 17 or older, which means that they're probably seniors in high school and college is in the not too distant future, or they're already in college. Your teen will soon leave home or has already left the nest, and you need to decide if that teen also needs to leave your income tax return as a dependent.

Deciding whether or not you can deduct that child as a dependent can be a sad task, as it means that your child is getting older and that you're getting older, too. More grief is encountered when you realize how valuable this child was as a dependent, because each dependent directly translates into an exemption, a specific dollar amount that - in most cases - can be deducted from your adjusted gross income.

Key tax breaks associated with a child include the dependency exemption, head of household filing status, child tax credit, child and dependent care credit, and the earned income tax credit. Before the 2006 tax year, each of these tax situations held different requirements for how a child could help you qualify for each tax break. Now, the rules are more uniform and they reflect changing families (Read more at BankRate.com).

I want to focus on the dependency exemption because it is Independence Day. The child must be younger than age 19 by year-end to qualify for the dependency exemption. If that child is a high school or college student he or she can be claimed as a dependent as long as that child is under age 24 by year-end. But, if you love your child then maybe it's time to let go - especially if their dependent status hurts your child's chances for college scholarships, grants, and loans.

Most colleges take parental income into consideration when a teen applies for financial aid. Income isn't the only consideration, as most colleges also want to know about parental assets, including any property, savings accounts, investments, and that wad of cash stashed under the mattress. The more money that a dependent teen's parents have, the less the chance that teen will qualify for need-based scholarships and loans when he or she applies for college monies.

But, if that child becomes an independent, then that teen doesn't need to list any parental monies on financial aid forms. The important thing is that the teen has been accepted at a college - if acceptance has been confirmed and that teen is independent, then need-based monies are easier to snag.

You might also have questions about whether your dependent child needs to file income taxes on his or her summer job. A dependent may have to file a return even if his or her income is below the amount that would normally require a return. If that child is unmarried and his income was over $5,150, he needs to file a return. If a child is unmarried and if she received more than $850 in unearned income from investments, she will also need to file a return (A parent of a child under age 18 may be able to elect to include the child's interest and dividend income on the parent's return - see previous article).

If that child has both earned and unearned income, even more requirements apply. You can view the IRS information on this child's status and act accordingly. You might now ask who's responsible for filing this income tax return?well, the person who earns the income is responsible, and so your child must file the return (however, if that child can't read the information provided because he's too young, it would be nice if you helped).

If your child is over age 18, you cannot add that teen's income to your tax return. If you wondered, a child born on 1 January 1989 is considered to be age 18 at the end of 2006. So, if your child is working this summer and he or she was born before 1 January 1990, then that child will be considered age 18 for 2007 tax returns unless the rules change again.

Now, think about this - if you don't count your child as a dependent on your taxes, that child would not need to file a return if their income was below $8,450. There's a big difference between the income barrier of $5,150 for a dependent child and $8,450 for an independent child. If that child doesn't need to pay additional income tax, and if that child won't receive a refund, then why file? Independence makes it a little easier in that realm as well.

Granted, we all want to hang on to our children as long as possible, and each parent has a special reason for holding tight. But, eventually that child will want you to let go, and if you don't you might have a small one-person rebellion on your hands. While the rebellion might not be large, the chances for peace might take years.

Sit down with your teen and talk with him or her about the life changes that will happen within the next few years. Some teens will relish the thought of being independent, even though they might not realize the responsibilities that come with that freedom yet. Other teens might balk at being set 'free,' and their anxieties could overwhelm them.

Only you know, as parents or as sets of parents in a divorce case, what's best for that teen. And, when that teen provides input about their feelings you'll know which route you want to go with the IRS, the college financial route, and the summer job tax situation.

Until Next Week,
Linda Goin