Custodial Roth IRA W2 or Self Employment?

[viperdbr]

I setup a custodial Roth IRA for my son and contributed $1000 to it in 2025, I plan to contribute the same in 2026. I have a small business (LLC) repairing and selling cars that he helps me with cleaning seats, carpets, and other odds and ends. 

Is it better to submit a W2 to him or do a self employment and submit a tax return on his behalf? I'm trying to do whatever creates the least complications or work. 

[Bsch4477]

Sounds like he is an employee so a W-2 is appropriate. 

[viperdbr]

Since I did not submit any forms to the IRS for him (Form 941) for 2025, would it be more pertinent to report the income on his end as self employment income, then for 2026 switch him to employee (W2)?

[DianeW777]

It depends. For elimination of late filing fees as an employer, you could report his income as self employment for 2025, then be sure to get him on the payroll for 2026. Keep in mind the self employment income will be the net income and not the gross income to use for IRA contributions. Excess contributions would cause tax repair to say the least.

• Example: Your self-employment income for an IRA deduction is your net earnings, which is your net profit (from Schedule C or F) minus the deductible portion of your self-employment tax.

Review the following information so there are no surprises for you: IRS Family Employees

@viperdbr