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I'm 58 years old, and living at home with my parents. I do some things to help them out, but they are being a bit generous to let me stay in an addition that my grandmother built on to their house. I also do house and other work for them. I do a fair amount of gardening and various internet research for them, and a little house work. Mostly, it has been they eating the garden veggies grown last year (which were well worth what they paid).

My records have me earning just under $1,200 from them last year. I have contributed the earned amount to a newly-opened Roth IRA. I have also been doing investing, and while I have done well in previous years, this year I will be reporting substantial losses. I plan to invest the Roth IRA money as well. So far, I just have a spreadsheet showing the jobs I've done for them, the dates the work was done, how much I earned, and how much they paid me for it.

I'm concerned if the IRS wanted to challenge it, if they might need some other documentation. Last year, I filed my earnings as a sole proprietorship, and paid FICA etc., as per the relevant schedules. I will make well under $10k this year, what with my investment losses. I don't know if I will still need to pay FICA contributions, since year before last, it said I don't even need to file if I make under 10k. I don't believe I will have to file a 1040 due to my income.

Questions:

  1. Will I still need to file as a Sole proprietor, even though my investment losses exceed my earnings this year?
  2. Will my spreadsheet be sufficient documentation to support this as earned income?
  3. Should my parents file something in order to support my claim that this is earned income? They are willing to.

Notes: I am aware I won't be able to take the money out for 5 years from opening the acct. without penalty, except for special situations. I am also aware there are limits on what I can contribute; and if I make enough outside of the IRA, I won't be able to contribute at all that year.

Chris W. Rea
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CodeLurker
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1 Answers1

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Will I still need to file as a Sole proprietor, even though my investment losses exceed my earnings this year?

One is not related to the other. Since you've net earned more than $400 from self-employment, you're expected to file a tax return and it would include Schedules C and SE to account for the self-employment earnings. See here:

You had net earnings from self-employment of at least $400. (See Schedule SE (Form 1040) and its instructions.)

This will also be the basis for your eligibility for the IRA contribution.

Will my spreadsheet be sufficient documentation to support this as earned income?

If you're audited - it may not be. The IRS may decide to challenge your Schedule C earnings if you don't provide any additional documentation. However I doubt they'd have any incentive in doing that, other than maybe challenging the IRA contribution.

Should my parents file something in order to support my claim that this is earned income? They are willing to.

Schedule H comes to mind. With $1200 they may be below the threshold, but they may still file.

littleadv
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