That's interesting! So are you saying the IRS doesn't strictly apply the $1,470 monthly limit that the SSA uses? My daughter has Down syndrome and occasionally works more hours for special events, but we still provide over 90% of her support.

That's right - while the IRS and SSA both use the term "substantial gainful activity," the IRS focuses more on the overall support situation rather than rigidly applying the monthly earnings limit. If you're providing 90% of your daughter's support, you're well within the requirements to claim her as a dependent. The key test for the IRS is whether you provide more than half of your dependent's total support for the year. The SGA question becomes more relevant if they're earning enough that they might be supporting themselves. Even with occasional higher earnings for special events, it sounds like your situation clearly meets the support test.

There are different SGA thresholds for blind individuals versus non-blind individuals with disabilities. In 2023, the threshold was $2,460 per month for blind individuals and $1,470 for non-blind. Doesn't matter what type of disability otherwise - physical, cognitive, etc all fall under the same threshold as long as they're not blind.

Thanks for pointing this out! My income was definitely below those limits in 2021 (around $65k) so I was eligible for the full contribution. I think I might have been confused about how much I actually contributed - just double checked and it was exactly $6k, not $8k like I initially wrote. My memory isn't what it used to be lol. If I'm understanding everyone correctly, since the Roth contribution doesn't affect my tax liability and my income was too high for the Saver's Credit but below the Roth income limits, there's really no benefit to amending my return. Does that sound right?

That's exactly right. If your contribution was $6k (within the limit), your income was below the Roth IRA income thresholds but above the Saver's Credit limit, there's really no reason to amend your return. The IRS already has the information from the Form 5498 that your financial institution filed, and since Roth contributions don't impact your tax liability, you're good to go. One less thing to worry about!

Can you explain what a "backdoor Roth conversion" is? I keep hearing about it but don't really understand the concept or why it matters for record keeping.

This is great advice about documentation. I hadn't thought about taking photos of him working as evidence. Is there a specific format you'd recommend for the work log? Like a spreadsheet or something more formal? And for paying him, should I set up a separate bank account in his name?

I used a simple Google spreadsheet with columns for date, start time, end time, total hours, hourly rate, total pay, and a detailed description of tasks. I had my daughter fill it out daily when she worked and I'd review it weekly. Nothing fancy, but consistent documentation is what matters. Definitely set up a separate bank account in his name. I opened a custodial account for my daughter and had her paychecks direct deposited there. This creates a clear paper trail showing the money was actually paid to her. Having a separate account also makes it easier to track when money moves from his earnings to the 529 contribution. The account statements become additional documentation of the legitimate business relationship.

But doesn't the parent/business owner still have to pay the employer portion of FICA even if the kid is exempt?

No, that's the beauty of this exemption. When a child under 18 works for a parent's sole proprietorship, both the employer and employee portions of FICA taxes are exempt. So neither you nor your child pays the 15.3% FICA tax. The exemption applies to both halves of the tax. This only works for sole proprietorships and partnerships where both partners are the child's parents. If your business is an LLC taxed as a corporation or an S-Corp, this specific exemption doesn't apply and you'd have to pay both portions of FICA like any other employee.

Thanks for that perspective. Is there a deadline for when I need to get the corrected 1099 filed? The contractor is making it sound like this needs to be done ASAP or there will be serious consequences.

You should file the correction as soon as reasonably possible, but there's no strict deadline specifically for corrections. The original 1099s are due January 31st each year, but corrections can be submitted after that. Your contractor is definitely overreacting. While it's annoying for them, it's not going to destroy their business. We just include a note with our tax filing that explains the discrepancy. If anything does come up, the S-Corp has documentation (their W9 showing their status) to easily resolve it. I'd still get the correction done within the next month to be professional, but the panic is unwarranted.

This is an excellent point. You can verify business information through your state's Secretary of State business entity search. Check if the S-Corp is properly registered and if the names match up with what's on the W9. DBAs should be formally registered too.

Thanks for this breakdown. I've definitely been tracking materials and subcontractor costs, but I haven't been great about the smaller stuff like software and phone expenses. Do you need special documentation for the home office deduction? I've heard that's an audit trigger.

For the home office deduction, you need to use a space exclusively for business purposes. Measure the square footage of your dedicated office space and divide by your home's total square footage to get the percentage. You can deduct that percentage of rent/mortgage interest, utilities, insurance, etc. It's not automatically an audit trigger if done correctly. Just make sure you have photos of the space and documentation of expenses. The simplified option is also available - $5 per square foot up to 300 square feet ($1,500 max) which requires less documentation. Either way, if you legitimately use part of your home exclusively for business, you should claim it.

QuickBooks is crazy expensive tho. Are there cheaper alternatives that work with Stripe?