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Question for the Money Doctors

Question submitted on May 14, 2019.

Question

My 12 year old son will likely earn about $750 mowing lawns in 2019. I would like to start a Roth IRA for him. I understand I can contribute up to $750 for him into a custodial Roth IRA. What I don't understand is the tax implications of such a move. He will have to file a tax return claiming his self-employment income as taxable income. What will he owe on $750 in self-employment income at the Federal and State of Missouri level?

Answer

I think it's a great idea to contribute to a Roth IRA.  Continuing contributions at such an early age, if left untouched, have a chance to grow to a nice sum later in life.

The tax question is not as simple as it may appear.  If he has no other income, he will not have a Federal  income tax liability.  I cannot adequately address how Missouri handles earned income.  As you mentioned, he more than likely will have a Federal self-employment tax liability.  However, he will be able to deduct business related expenses, such as fuel, supplies and mileage, against this income.  Therefore, the amount taxable for self-employment purposes could be less than $750.  I would suggest contacting a local CPA to get their input as they can go into detail about your Missouri question and also better address expense deductions.


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