The Money Mustache Community
Learning, Sharing, and Teaching => Mini Money Mustaches => Topic started by: Mr.Bubbles on July 28, 2016, 04:29:51 PM
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According to Fidelity, income can come from any sort of job including babysitting, snow shoveling, mowing lawns ect. someone one another thread also brought up infant modeling and that sort of thing. If theres no tax document how would you go about proving it is income? I highly doubt the IRS will just trust that a small child is making money.
https://www.fidelity.com/retirement-ira/roth-ira-kids
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If your kids are getting a tax benefit from earned income, that earned income probably has to be reported to the IRS in a Schedule C. My dad has my sister keep track of her babysitting money throughout the year (doesn't have to be fancy, just a notepad with dates and amounts and the family she babysat for) and file a tax return. She's under the threshold of owing anything, but that way everything is reported and then you can use that the filed Schedule C as the "earned income" support for the Roth IRA.
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Same way you would if you had your own small business. Excel, receipts, write your kid a pay stub for yard work, etc.
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I think it really needs to be professional baby modeling to count, but you could probably count kids work for paid chores starting around 3 or so? Interested to hear what others have to say here as well.
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Legally do kids owe taxes on allowance, if the allowance is for chores?
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If your kids are getting a tax benefit from earned income, that earned income probably has to be reported to the IRS in a Schedule C. My dad has my sister keep track of her babysitting money throughout the year (doesn't have to be fancy, just a notepad with dates and amounts and the family she babysat for) and file a tax return. She's under the threshold of owing anything, but that way everything is reported and then you can use that the filed Schedule C as the "earned income" support for the Roth IRA.
Does she not have to pay ~15% in SS taxes in order to prove her earned income for the Roth?
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Nice discussion of the issue here:
http://fairmark.com/retirement/roth-accounts/contributions-to-roth-accounts/roth-iras-for-minors
I first funded a Roth for my daughter last year, matching her earnings from scooping ice cream very part time. The key is the earnings have to be taxable earnings. My daughter did file a tax return.
The article suggests allowances and money paid for household chores would not qualify, although it says the IRS has not ruled on the issue.
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i wish there was a more cut and dry answer to this all
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If your kids are getting a tax benefit from earned income, that earned income probably has to be reported to the IRS in a Schedule C. My dad has my sister keep track of her babysitting money throughout the year (doesn't have to be fancy, just a notepad with dates and amounts and the family she babysat for) and file a tax return. She's under the threshold of owing anything, but that way everything is reported and then you can use that the filed Schedule C as the "earned income" support for the Roth IRA.
Does she not have to pay ~15% in SS taxes in order to prove her earned income for the Roth?
I believe that is correct.
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My toddler did some modeling for a company and got money as a check for her participation. Can I open Roth IRA for her and deposit that money in there? It's less than $6k so there wouldn't be any tax returns to be filed for this one. Also the 15℅ SS wasn't taken from this payment. Should I pay it for her?