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Retirement tax questions
@Txmex24 wrote:
Yes he mowed yards. So he will claim the SE and the ira stuff on his and then mark that someone can claim him? And then his dad can claim him correct?
If he was self-employed, he should report his gross income on schedule C and can deduct legitimate expenses, and pay income tax and self-employment tax on the net profit. If his income is less than $12,550, he won't owe income tax but he will still owe self-employment tax. Most of the time, a child working does not contribute enough to their own support to be disqualified as a dependent of their parent, but he does need to answer "yes, I can be claimed as a dependent" on his own tax return.
His "compensation" for making IRA contributions is his net income (after expenses), minus half his self-employment tax. That's 92.35% of his net income. So if he reports $6000 of self-employment income and no expenses, he will have $5541 of compensation and can contribute up to $5541 to an IRA. (He will also pay $848 in self-employment tax).