Children & earned income

I read the article on starting a child's IRA as soon as she has earnings, even babysitting. If I hire my child to do pet sitting, chores, etc. do I have to report her earnings as income to the IRS? What are the tax consequences for childhood earnings up to $2000? And I guess, if this made financial sense, would I have to produce a W-2 or a 1099?

Just trying to figure a way to start a tax-deferred account for my child without actually starting a home business.

- - RSL III

It wouldn't be a good idea to consider money from work done around the house as "income" for IRA purposes. It would be better if the child did babysitting, washed cars, mowed lawns etc. for other people. (See Do allowances count as "earned income?" (http://www.kiplinger.com/basics/managing/kids/faqs/pfaq_roth.htm#Do))

And if the child earns $400 or more from self-employment, a return must be filed. The child wouldn't need a w-2 for such income, but should keep very good records, say in a journal, just in case.

The IRS hasn't issued much official guidance about IRAs for kids. But the amounts of money involved are generally so small, and the potential benefits so large, that it's worth taking full advantage of the opportunity.

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