Yes, 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.
