Record Babysitting Money as Taxable Income
Your children might say, "No way!" They would never want to record babysitting money as taxable income, but let's look a little further...
There's no legal question about it, babysitting income is taxable.
The IRS on Babysitting: "If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you." Childcare income is taxable.
The reason the IRS does not track down babysitting kids is most children would not earn enough to owe taxes and be required to file a return.
So, why should children file a return if they're not required to?
To get a Roth IRA! By filing a return, babysitters create a document proving they have earned income, and earned income is required to make a contribution to a Roth IRA.
A simple Duplicate Receipt Sales Book, 3.34 x 7.19 Inches allows babysitters to provide a receipt while keeping their own copy for easy tax filing. This is normally their only babysitting business expense, unless they are contributing to gasoline. I would not recommend holding your child responsible for any transportation expense. When adults file taxes, we usually aim to claim every possible expense. Our goal is to reduce our taxable income. In the case of a working child, the goal is to have the highest taxable income possible (up to the annual contribution limit for a Roth IRA, $5,000 in 2011. The higher the income, the more that can be contributed to a Roth IRA. So, don't be tough on your child. Pay for their gasoline expense.
(It's a good idea to save all receipts, the tax return, and any Roth IRA account paperwork in a file or binder until the Roth IRA is cashed out.)
Working children who save in Roth IRAs accomplishe two goals. The Roth IRA will benefit your child at retirement time, but also, these funds are shielded from the federal computation for student aid.
When your child begins babysitting, show your full support. See if there is a "Safe-Sitter" class in your area, purchase some books, or surprise your child with his or her own babysitter business cards.
How to Start a Babysitting Service
Before you know it, that babysitting money will be adding up, the Roth will be growing, your child's self-confidence builds, financial management skills grow, and who knows, maybe one day they will even thank you for setting them on this sensible financial path.