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Subject:  Re: roth ira for your young kids/grandkids Date:  4/17/2012  1:53 PM
Author:  TMFPMarti Number:  116055 of 129289

""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"""

I'm not sure the source of this comment, but the payments we've been discussing are most certainly taxable for income tax purposes, from 50 cents up. The exemptions have to do with employment taxes. Following through on that, it's the fact that the payments are "taxable compensation" that allows them to be the basis for an IRA contribution.

Whether the child must actually pay any income tax depends on total income for the year. A dependent child's standard deduction can be as much as a non-dependent's standard deduction if there's enough earned income. For details on the standard deduction and filing requirements for dependents, see the 1040 instructions.

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