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Am I correct in understanding that:

1. The Single member family business LLC doesn't need to issue a W-2 to the child if there are no withholdings or taxes because the wages are less than standard deduction ($5,000)?   A W-2 MUST be issued so the IRS knows she had qualifying income to make the IRA contribution.

 

2. Alternatively, if the business does issue a W-2 and since the wage ($5,000) is below the minimum standard deduction for the state and federal requirements, there's no need to file a tax return even though the child makes a contribution of $5,000 to a Roth IRA?  This is the very reason for filing the W-2 form... to support the contribution. 

 

Would this create an issue with the IRS system because it's seeing a W-2 and 5498 but no tax return?   Again if a return is not  this is not an issue ... the W-2 supports the form 5498 contribution.