9/12/21 Looking back on my notes from 9/3/21, Meredith Cox and I had a phone call to discuss the next steps with our finances. These were my notes from the call.
Currently Meagan pays her labor as subcontractors. This will throw a red flag on everyone else if Maddie is paid for a similar job as an employee and everyone else is a subcontractor. Meagan provides the instructions, the supplies, the schedule. Currently, Meagan’s subcontractors would probably legally be categorized as part-time employees instead. To set up the payroll, Meagan would need a payroll provider which would be at least $50 per month, plus QuickBooks online which is another $50 per month. Either way, whether Maddie gets paid as a 1099 Subcontractor or a W2 Employee, she will need to file a tax return. It will be a little one and it can be completed online for free.
We started a custodial Charles Schwab Roth IRA in Maddie’s name with Meagan as the custodian. We put $350 in it to start. The deal is that Maddie must have earned income to be eligible for the Roth IRA. If we paid Maddie $10,000, then she will be taxed $1530 for self-employment tax. The advantage of the Roth is the savings over time. Whatever we can defer from Meagan Warren Weddings to Maddie, Maddie will pay self-employment tax, but Meagan won’t have to pay Income Tax on that money.
She recommended that we invest it in a target date fund VANG (VLXVX).
This is a minimum $3000 per share. If we put $6000 in, then we can buy two shares.
The timing doesn’t matter with when we put money into Maddie’s’ Roth. She just needs to have earned the money and it would help if the amount she earned is more than what was put into the IRA. For example, it would be ideal if she earned and was paid $7,000 or $8,000 and we transferred $6000 into her Roth.
The two factors that we need to work with when determining Meagan’s SEP amount is Net Income and additional cash that we might have available to put into the account. This is not a rush, we will know this number when we are finalizing our 2021 taxes in the Spring of 2022. It would be a good idea to go ahead and set up this SEP account with Charles Schwab but it can’t sit empty for more than a year. We can put money into it next March when we know the final tax numbers.
Summary: Pay Maddie via 1099; Pay more than what we put into the Roth for her; Pay Maddie up to $12,000 for 2021; she will have to file a tax return and pay self-employment tax; the goal is to have a nice Roth for Maddie and invest Maddie’s money into VLXVX.
