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Amanda
So another question got my thinking. Last year my kids decided to do an egg my yard thing. People paid them to buy, stuff, and hide Easter eggs in their yard.
I’m assuming this could count as income just like any other side gig for Roth purposes?
They each made $1000. How would they go about claiming that so that they could use it to fund their ira accounts?
ShawnReport it in a schedule C as self employment income. Deduct the expenses. If you report it on your return and W2 the kids as employees they don’t have to pay FICA.
I think if they have self employment income themselves they do need to pay.
DeidreI’m just here to say congratulations to you and your kids! That’s some kind of hustle. I wish there had been that service when my kids were young. Great job!
DamianYes, the income your kids earned from their “Egg My Yard” side gig can be counted as earned income, which is eligible for contributing to a Roth IRA. Here’s a step-by-step guide on how they could go about claiming it and using it to fund their IRA accounts:
1. Report the Income
Since your children earned $1,000 each, they will need to report this income to the IRS, even if it’s below the standard deduction limit.They should fill out Schedule C (Profit or Loss from Business) to report their income from the egg business as self-employment income.
If they had any expenses (e.g., for buying the eggs, candy, or other supplies), they can deduct these from their gross income on Schedule C to lower their taxable income.
2. Pay Self-Employment Taxes
Even though their earnings are below the federal income tax threshold for minors, they may need to pay self-employment tax (15.3%) if they made over $400. This covers Social Security and Medicare contributions.They would use Schedule SE to calculate the self-employment tax owed.
3. File a Tax Return
Even if the income is below the standard filing requirement, they may want to file a tax return to properly report this income and show the earnings necessary for contributing to a Roth IRA.4. Open and Fund a Roth IRA
After reporting their income, they can open Roth IRA accounts. Since they each made $1,000, they can contribute up to $1,000 (or less if they had expenses) to their Roth IRA for the year.Make sure they meet the income limits and other requirements for contributing to a Roth IRA, but typically minors can contribute as long as they have earned income.
By reporting the income properly, they can take advantage of tax-advantaged retirement savings at an early age!
Let me know if you need help with any specific part of this process.
GrahamThey need taxable income. Not just money. Just open a brokerage account for them otherwise. My son is one and I don’t have to worry taxable income for him to have contributions made to his account.
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