Can I buy a vending route for my 2 year old and...

[burritos]

then use the proceeds as earned income for him? I'm planning to buy 2 gum ball machines. I'm anticipating anywhere from about $500-1000 of net a year, so not a lot. Obviously I'll do most of the work initially, but I can get him to fill the machines. It'll be more work than a baby model who sits as a prop oblivious to what's going around. Though the IRS recognizes that as a job/earned income. This probably won't qualify for the IRS, but would red flags fly for audits if they see a tax return for a 2-3 year old for $1000 on a 1040A?

The goal of this whacko venture is to
1. Start funding a Roth IRA for him.
2. Teach him vaguely the concept of trade/work for himself.
3. AND eventually learning to appreciate the power of passive income and compounding.
4. I know 2 is early, but I've run across an opportunity where I can but 2 well placed machines for very little money, so I thought, what the heck.

[Jesse]

Whatever........

Just make sure he completely fills out a time card and have him list all duties performed for each pay period and sign and date each of these time cards. Also don't forget to check with your state department as a workmen's comp policy may need to be in place and paid as well.

[Bees Knees]

A 2 year old model is actually performing a service just for being cute and photogenic. A 2 year old vending machine business owner has no valuable skill or service he could perform for the business.

The point is, the IRS is not going to let you shift your income to your child simply for tax avoidance purposes. The kid has to actually earn the money.

[taxmandan]

Though the IRS recognizes that as a job/earned income. This probably won't qualify for the IRS, but would red flags fly for audits if they see a tax return for a 2-3 year old for $1000 on a 1040A?

A child can't 'buy' a business since this involves a legal contract of some sort. Buy the route for yourself, set up a 529 college deferment plan for your son and contribute the money to it. That will build value and be there for him when he enrolls at Harvard MBA. He can help you with it and take it over when he is old enough to actually perform the work.