$250 income and taxes

[schildi]

Hi All!

My DS is 17 years old, and for the first time in 2019 had some income (about $250).

I will claim him as a dependent, and my understanding from reading up on the topic is that he does NOT have to file an income tax return.

Am I correct with that?

Is there any reason why he should file one? He did get W2s from two employers adding up to the $250.

[TheOtherMe]

He only needs to file if he had withholding and wants to get his refund.

[schildi]

Thanks, that's what I thought.

It looks like he only paid Social Security and Medicare taxes.

Is there any advantage to him if we do file a return regardless, even down the road?

[TheOtherMe]

Not unless he wants to put his money in to an IRA.  

That amount will get reported to Social Security via the W-2.  I can't think of any advantage off the top of my head.

[tallguy]

I don't think it requires a tax return, but if I were you I would fund a Roth for him.  It's only $250 and it will get him started on investing. 

[schildi]

Jan 22, 2020 23:44:34 GMT -5 tallguy said:

I don't think it requires a tax return, but if I were you I would fund a Roth for him.  It's only $250 and it will get him started on investing. 

Now that's an interesting thought! I think I will do that.

You think funding a Roth would still not require a tax return? Does anybody here know for sure?

[Deleted]

Jan 23, 2020 12:15:48 GMT -5 schildi said:

Jan 22, 2020 23:44:34 GMT -5 tallguy said:

I don't think it requires a tax return, but if I were you I would fund a Roth for him.  It's only $250 and it will get him started on investing. 

Now that's an interesting thought! I think I will do that.

You think funding a Roth would still not require a tax return? Does anybody here know for sure?

You would think you'd want proof of earned income, but according to this article it's not required. 

www.marottaonmoney.com/do-children-need-to-file-a-tax-return-to-fund-their-roth-ira/

I suppose the IRS already knows what your income was without you filing a return.

[tallguy]

Jan 23, 2020 12:15:48 GMT -5 schildi said:

Jan 22, 2020 23:44:34 GMT -5 tallguy said:

I don't think it requires a tax return, but if I were you I would fund a Roth for him.  It's only $250 and it will get him started on investing. 

Now that's an interesting thought! I think I will do that.

You think funding a Roth would still not require a tax return? Does anybody here know for sure?

There is a worksheet available to figure out a Roth contribution limit, but since you do not report Roth contributions on your return and those contributions are not deductible I can't see why it would be required to file just for that.

What I did for my son was to fund his first year contribution of around $3000 and then match whatever he put in for his second year contribution.  I stopped matching when I semi-retired, but at least got the idea planted and he continued to save each year.

[Apple]

Jan 23, 2020 12:15:48 GMT -5 schildi said:

Jan 22, 2020 23:44:34 GMT -5 tallguy said:

I don't think it requires a tax return, but if I were you I would fund a Roth for him.  It's only $250 and it will get him started on investing. 

Now that's an interesting thought! I think I will do that.

You think funding a Roth would still not require a tax return? Does anybody here know for sure?

It won't require a tax return, but have him keep the W2(s) as proof of income.

[schildi]

Thanks everybody!

$250 isn't much, but I think it will teach him to save.

We will match his contribution, so he will pay $125 and so will we (parents).

Great idea, I am glad I posted the question, I would not have thought about the Roth for him!

[tallguy]

Jan 24, 2020 1:05:25 GMT -5 schildi said:

Thanks everybody!

$250 isn't much, but I think it will teach him to save.

We will match his contribution, so he will pay $125 and so will we (parents).

Great idea, I am glad I posted the question, I would not have thought about the Roth for him!

Great, but I'd still do it the other way.  Fund the whole $250 for him this year.  It's a nothing amount to you, right?  He worked for the $250 and presumably had plans other than investing it, whether that was spending or saving for something else.  Reward him.  Bring in the matching as an idea for this current year.  That way he can plan for it.  Of course when I did it, I told mine that the max was $5500, so it ended up costing me over $2700 in matching funds.  Son ain't no dummy!  If someone is going to give him that much free money, he'll take it!   

ETA:  The other part of this (the parental contribution) is to instill the idea that even though the rules allow him to take the money out that option doesn't exist for him.  This is investing for the future, not saving just to blow later.  You're not giving him money for that.  You're giving him money to make his future better.  

[schildi]

Jan 24, 2020 1:22:04 GMT -5 tallguy said:

Jan 24, 2020 1:05:25 GMT -5 schildi said:

Thanks everybody!

$250 isn't much, but I think it will teach him to save.

We will match his contribution, so he will pay $125 and so will we (parents).

Great idea, I am glad I posted the question, I would not have thought about the Roth for him!

Great, but I'd still do it the other way.  Fund the whole $250 for him this year.  It's a nothing amount to you, right?  He worked for the $250 and presumably had plans other than investing it, whether that was spending or saving for something else.  Reward him.  Bring in the matching as an idea for this current year.  That way he can plan for it.  Of course when I did it, I told mine that the max was $5500, so it ended up costing me over $2700 in matching funds.  Son ain't no dummy!  If someone is going to give him that much free money, he'll take it!   

ETA:  The other part of this (the parental contribution) is to instill the idea that even though the rules allow him to take the money out that option doesn't exist for him.  This is investing for the future, not saving just to blow later.  You're not giving him money for that.  You're giving him money to make his future better.  

Totally agree - there wont be a withdraw option.

I am still thinking about the funding. He just started his first longer term side job yesterday. We'll see how things go this year. He needs to keep up his good grades as well as a prerequisite.

And we are working out a deal to transfer the wife's 2016 Outback to him (already has 72k miles on it), and getting the wife a new Subaru Outback. Need to factor all that in somehow. Any suggestions are welcome. I do not want to "just give" him big tickets items, he has to show effort from his side.

[schildi]

Got the Roth IRA opened and funded. We matched his $125 contribution for a total of $250.
Thanks for the suggestion!

[tallguy]

Jan 30, 2020 9:29:29 GMT -5 schildi said:

Got the Roth IRA opened and funded. We matched his $125 contribution for a total of $250.
Thanks for the suggestion!

[schildi]

Jan 24, 2020 1:22:04 GMT -5 tallguy said:

Jan 24, 2020 1:05:25 GMT -5 schildi said:

Thanks everybody!

$250 isn't much, but I think it will teach him to save.

We will match his contribution, so he will pay $125 and so will we (parents).

Great idea, I am glad I posted the question, I would not have thought about the Roth for him!

Great, but I'd still do it the other way.  Fund the whole $250 for him this year.  It's a nothing amount to you, right?  He worked for the $250 and presumably had plans other than investing it, whether that was spending or saving for something else.  Reward him.  Bring in the matching as an idea for this current year.  That way he can plan for it.  Of course when I did it, I told mine that the max was $5500, so it ended up costing me over $2700 in matching funds.  Son ain't no dummy!  If someone is going to give him that much free money, he'll take it!   

He liked the Roth idea after I showed him the projected balance over time assuming an 8% return.

Also, he just started a semi permanent job that he really likes, and will be earning an estimated $400 per month this year, so the $125 contribution does not hurt him too much. He has almost $1k saved also.

And now that he finished his online math college course with an A (he took the final exam on Monday), he won't even have to pay for the car he gets to use (the wive's  4 year old Outback, I ordered a new one for her).

I think he is getting a pretty good deal here, even with paying half of his Roth IRA contribution.   Luckily, he also agrees with that, LOL. He's happy!