The Motley Fool Discussion Boards

Previous Page

Financial Planning / Tax Strategies

URL:  https://boards.fool.com/quotquotincome-from-a-parents-business-what-29982336.aspx

Subject:  Re: roth ira for your young kids/grandkids Date:  4/17/2012  1:37 PM
Author:  blacktreechaser Number:  116053 of 129299

""Income from a parent's business
What if the parent is the employer? The fact that the income comes from a parent doesn't disqualify it, although the IRS may take a closer look in cases like this.

There have been a number of court decisions dealing with parents who paid children to work in the parent's business. None of them deal with the Roth IRA, though. These cases generally deal with the parent's deduction for the amount paid to the child. The Tax Court has allowed the deduction when it was convinced that the parents paid fair compensation for work actually performed in a real business. When the compensation wasn't a reasonable payment for work actually performed or didn't relate to a business, the deduction wasn't allowed. Bogus compensation won't support a contribution to a Roth IRA, either.

Household Chores
Why not use a child's earnings from household chores to meet the earned income requirement? Let's make some favorable assumptions:

¦The child is actually doing work for the money.
¦You're paying only a reasonable hourly rate for the work.
¦You have good records to prove that the work was done and the money paid.
Will that do the trick? Strangely enough, there's no clear guidance on this issue""


""It's difficult to prove this income isn't taxable. The Internal Revenue Code says all income is taxable unless an exception is made, and there's no exception for amounts paid by parents to family members for household chores"""

These segments are from a google search. The author gives the OPINION that household chores are not earned income. But its just that, an OPINION. The author say the IRS does not address the issue, so I'm not going to search the IRS site. I did look at the IRA publication, and I find nothing that prevents earned income paid by a parent for household chores not being eligible to go into a Roth IRA.
Copyright 1996-2019 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us