Ot: paying your kid to work

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Submitted by Coronita on August 7, 2021 - 11:27am

Dumb question...

If my kid helps me with some paperwork and basic record keeping for dealing my rentals, like managing my receipts, expenses,

Can i pay my kid and and give my kid a 1099 without needing to setup any sort of business entity? And if so, does this qualify as earned income for my kid so that they can open a Roth IRA and make $6000/year contributions starting at age 15?.... hypothetically speaking of course.

I really dont want to go through the hassle of setting up a business entity for this but im beginning to think i need to for other reasons.

Submitted by gzz on August 7, 2021 - 9:09pm.

As I recall no 1099 needed when it is under $600 a year. But then giving a kid cash isn't normally taxed.

When I was getting financial aid grants, they penalized me heavily for all the assets I had in my name. Basically having $1 in an IRA would have cost me ~$2.70 in lost financial aid grants.

Submitted by plm on August 7, 2021 - 11:25pm.

What a coincidence, I just realized this morning that when I quit my job (because they force you into the office and I don't think it is safe because of Covid) then I will not be able to do the Roth IRA because you need earned income for that, not investment income. But if I create a company for my rental as you suggest, then it can pay me each year for taking care of the rental so I can continue contributing to a Roth IRA!

Submitted by Coronita on August 8, 2021 - 1:00am.

So there's no way my kid is going to get financial aid.

Im just wondering if i need to setup a business entity in order to do this. I dont think so. But i wanted to check in case anyone is an accountant. Seems like i need to talk to a tax guy...

Submitted by Coronita on August 8, 2021 - 12:30am.

plm wrote:
What a coincidence, I just realized this morning that when I quit my job (because they force you into the office and I don't think it is safe because of Covid) then I will not be able to do the Roth IRA because you need earned income for that, not investment income. But if I create a company for my rental as you suggest, then it can pay me each year for taking care of the rental so I can continue contributing to a Roth IRA!

What im trying to avoid is creating a company to do this in my case. You cant give yourself a 1099 so you will need some entity to give you a 1099...

But i think im suppose to give anyone that does work for me a 1099, and so if my kid does really do bookkeeping for me, im suppose to give them a 1099. Just wondering if this is sufficient proof of earned income to allow a Roth IRA.

Paying my kid for $1000/years worth of work to unlock a $6000/year investment account that can grow tax free many years seems like a good tradeoff

Submitted by Coronita on August 8, 2021 - 1:01am.

Forget what i asked. I think im making this more difficult then it is. My kid tutors other younger kids... Therefore she has earned income, and therefore she can open a Roth...

https://www.marottaonmoney.com/how-to-fu...

Submitted by plm on August 8, 2021 - 7:40am.

I wasn’t very serious about this. Problem is you can’t contribute more than you earned.

Submitted by Coronita on August 8, 2021 - 9:29am.

plm wrote:
I wasn’t very serious about this. Problem is you can’t contribute more than you earned.

yeas but you only need to earn $6000 to contribute 6000

my kid earns about $125 / week tutoring math to grade school kids, so that should work out.

Submitted by plm on August 8, 2021 - 2:36pm.

Putting in 6K starting at such a young age is going to be huge later in life, all tax free.

Submitted by Coronita on August 8, 2021 - 5:03pm.

plm wrote:
Putting in 6K starting at such a young age is going to be huge later in life, all tax free.

yes. So starting at 15 and reaching 30, that should be roughly 1/2 million. Also, with no further contributions, by 60 that should be pretty big. As an added bonus, if contributions stop right before marriage, and provided no other money is comingled during marriage, that Roth IRA is clearly separate property, so in the unfortunate event of a marriage failure, thats still my kids separate property. IRAs also have some level of asset protection from creditors...

Submitted by plm on August 9, 2021 - 2:39pm.

At 10 percent gains, I calculate it to be more like 200K at age 30. You should have started your kids working at 6 or so for 500K

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