How to report teen's dog sitting income on FreeTaxUSA for Roth IRA eligibility?

You need to report your daughter's dog sitting income as self-employment income on Schedule C. The fact that she doesn't have a W-2 doesn't matter - dog sitting is considered self-employment income. In FreeTaxUSA, go to the Income section and look for "Self-Employment" or "Business Income." Enter her dog sitting income there. You'll need to answer some questions about her business activities, but keep it simple - just put "Pet Care Services" as the business name and use your home address. Be aware that if her net profit from dog sitting is over $400, she'll need to pay self-employment tax (Social Security and Medicare). The good thing is that once you enter this earned income, FreeTaxUSA should recognize it for Roth IRA contribution purposes. For the capital gains, that's separate - enter that in the investment income section. But remember, only the $2,700 from dog sitting counts as "earned income" for Roth IRA contribution purposes, not the capital gains.

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Don't forget that your daughter might qualify for the Qualified Business Income Deduction (QBI) on her Schedule C income! This could reduce her taxable income by up to 20% of her qualified business income. Also, make sure you're tracking all her legitimate business expenses to reduce her taxable self-employment income. Things like: - Mileage if she drives to clients' homes - Any supplies she purchases for the dogs (treats, toys, etc.) - Portion of cell phone if used for business - Business cards or advertising - Any special clothing just for dog sitting These deductions will lower her self-employment tax liability while still counting as earned income for Roth IRA purposes!

I think everyone is overlooking something important - if your daughter is a dependent on your tax return, her standard deduction is much lower than the regular standard deduction. It's limited to either $1,250 or her earned income plus $400, whichever is greater (but not more than the regular standard deduction). So with $2,700 in earned income, her standard deduction would be $3,100 ($2,700 + $400), which means some of her capital gains might be taxable! Make sure FreeTaxUSA is calculating this correctly.