Oh that's interesting! He did do some weekend yard work for our neighbor and got paid about $300 cash throughout the summer. Does that count as self-employment? And would that change whether my parents can claim him?

The $300 from yard work would technically count as self-employment income, but since it's under the $400 threshold for self-employment tax, it doesn't trigger a required filing on its own. Your brother would add this to his total income though if he does file. This doesn't change your parents' ability to claim him as a dependent at all. The dependent qualification is based on age, relationship, residency, and support tests - not on whether the dependent files their own return or how much they made (within certain limits that your brother is well under).

This is so true! I wish someone had taught me about taxes when I was younger. I was completely lost when I had to file on my own for the first time in college.

So these improvements would increase my basis in the home and therefore reduce the calculated gain? I've done quite a bit to the house over the years - replaced all windows, completely renovated the kitchen, added a bathroom, and put in a new HVAC system. I didn't realize those would factor into the capital gains calculation.

Exactly right! All those improvements you mentioned increase your cost basis, which means less taxable gain when you sell. The formula is basically: Sale price - (Purchase price + Improvements + Selling costs) = Capital gain. Those renovations you mentioned are perfect examples of what qualifies. The new windows, kitchen renovation, additional bathroom, and HVAC replacement all increase your basis. Make sure you have documentation for these expenses if possible. Even if you don't have every receipt, estimates with supporting evidence (like before/after photos, contractor statements, etc.) can help if you're ever audited. This could potentially save you thousands in taxes!

The safe harbor rule usually applies to whether something qualifies as a repair vs. capital improvement, not to capital gains exclusions on home sales. I think you might be mixing up concepts?

Does it matter if the family member business is an S-Corp vs sole proprietor? My sister started paying me for IT work but her business is just a Schedule C.

The business structure does make some difference in how the transactions are reported, but the fundamental requirement that transactions be legitimate business activities at fair market value applies regardless of structure. With an S-Corp, there's typically more formal documentation and separation between the business and owner, which can help establish legitimacy. With a sole proprietor/Schedule C business, transactions between family members often receive more scrutiny because the line between business and personal is less formal.

This is the most sensible advice here. The standard mileage rate is so much simpler and the IRS rarely questions it as long as you have a mileage log. Taking huge vehicle depreciation for minimal business use is asking for trouble. The IRS isn't stupid.

Good point! But I believe transfers between spouses are usually exempt from due-on-sale clauses under the Garn-St. Germain Act. Still worth checking your specific mortgage terms though.

Do you withhold taxes from their paychecks or is there some exemption since they probably don't make enough to owe taxes anyway?

We do withhold federal income tax as normal, but they both typically get it all refunded when they file their returns since they earn under the standard deduction. For FICA taxes (Social Security and Medicare), there's an exemption for children under 18 working in a parent's business if it's a sole proprietorship or a partnership owned only by the parents. Since our restaurant is set up that way, we don't have to withhold FICA taxes from their wages, which saves everyone money. If your business is incorporated, different rules apply and you would need to withhold FICA.

There's no minimum age requirement in federal law for working in a parent's business (though state laws may vary). But what matters is whether the work and pay are reasonable. A 9-year-old stuffing envelopes occasionally should be paid what you'd pay any kid that age for that task - not an adult wage.