The Basics of Taxes: What Teens Should know about Income Tax and Deductions

Taxes are not the most exciting part of teen life, they are, however, the most important. Knowing how they work-even at a basic level- gives you control over your money and makes you financially smarter. Learning how taxes work is not as complicated as it sounds. It just requires a close attention to a few basic things.

What is Income Tax

Income Tax is a portion of your earnings that you pay to the government. That money is utilized for all public welfare tasks and actions such as building roads, railways, schools, hospitals etc. you can see it as your contribution to the nation and the government that ensures your well-being, ensures that the system runs smoothly. The more you earn, the more you are expected to contribute as Income tax. This is progressive taxation. 

Do Teens Really Need to know about Taxes?

A question that you often ask yourself and others. Answer is yes. It is a preparation for your future life. Further, many of you might be doing those part-time jobs, might have launched a start-up, freelancing for a software company or just tutoring young kids. In all these scenarios, you should know about Income taxes. You might even have to pay taxes. So, the conditions for paying the taxes are given below:

In India:

If your annual income is less than 2.5 lakh, you are exempted from taxes, but you still have to file income tax returns or build a financial profile. If you exceed beyond 2.5 lakh, you must pay a certain amount of taxes. Even if the tax is deducted by your company (TDS), you might  be eligible for a refund.

In the U.S. 

If you are under 65b and have earned more than 14,600 dollars, you must file a return. Even freelancer, earning more than 400 dollars, have to file and pay self-employment tax, regardless of age. 

Even if you are beneath the threshold, filling early builds your financial credibility for loans in future, visas, employment etc.

Taxable Income

This can include:

• Salary or wages from a job

• Freelance payments

• Earnings from Online Platforms (YouTube reels, Instagram shots)

• Bank Interest or Dividends

• Crypto or stock market profits (capital gains)

If you’re money through any sources, it is wise to pay taxes, since the income would easily be tracked. 

What are Tax Deductions and Why Should you Care?

Deductions reduce your taxable income, which means you pay less tax or get more refunds. Even you can qualify for deductions.

Common Deductions for Teens

In India

• Under section 80C: if you invest in PPF, ELSS, or insurance (even through your parents) you can claim deductions up to 1.50 lakh rupees.

• Standard Deduction- about 50,000 Rupees deduction for salaried individuals.

• Education Loan Interest: under section 80E, you can claim deduction on interest paid on student loans.

In U.S:

• Standard Deduction: Automatically applied -14, 600 Dollars for single Filers 

• Education Credits: American Opportunity tax Credit (AOTC) and Lifetime Learning Credit.

• Self-Employed Deductions: Equipment, software, phone bills, and even internet costs. 

Key Tax Terms You Should Know

PAN/SSN: Your tax identity number (PAN in India, SSN in the US)

ITR: Income Tax Returns- a form through which you declare your income

TDS: Tax deducted at source- your employer deducts the tax before paying you the salary. 

Gross Income: Your total earnings before the deductions 

Net Income:  What is left after tax deductions. 

How to File taxes

In India:

1. Get a Pan Card (if don’t have one as yet)

2. Keep records of all income (bank statements, payslips, invoices)

3. Calculate your income and deductions

4. File your return on Income Tax Portal (https://www.incometax.gov.in)

5. Verify using Aadhar OTP or net banking

In the U.S:

1. Gather W-2s (for jobs) or 1099s (for freelance income)

2. Use platforms like TurboTax, IRS Free File, or consult a tax advisor

3. File by the April deadline 

4. Track federal and state filing requirements 

Filing doesn’t mean always paying. You might even get money back through refunds!

Smart Tax Tips for Teens 

• Track all income digitally – Google Sheets, Notion or Finance apps.

• Save receipts for expenses if you’re freelancing or self-employed. 

• File on time to avoid penalties- even if you owe nothing.

• Ask Questions – don’t be afraid to talk to an adult or use a free tax helpline.

• Stay informed – tax rules change annually; stay updated!

Finally, understanding taxes might seem overwhelming now—but the earlier you start, the more confident you’ll be as you grow. Being tax-smart isn’t about making money- but it’s keeping more of what you earn, about becoming smart early on and avoiding the mistakes others make.