kids w/1099 -livestock shows

[gman]

I have kids recieving 1099's showing income from sale of animals at
the county livestock shows. Is the common pratice to put them
as mayber prizes & awards on line 21--other income???

Any suggestions??

Thanks

[Jiggers]

4-H Club or FFA Project

See IRS Pub 225, Farmers Tax Guide. Page 77. The "net" income goes on line 21. You attach a statement. If a 1099 was received, I would identify it on your attached statement.

I have done this in the past. No problem.

[Koss]

Box 3 or Box 7?

I have kids recieving 1099's showing income from sale of animals at
the county livestock shows. Is the common pratice to put them
as mayber prizes & awards on line 21--other income???

Any suggestions??

Thanks

Prizes and awards usually go in Box 3. My favorite example is the "prize" you get if you are caller number nine on the radio show.

Box 7 is usually self-employment income, which would usually be subject to self-employment tax.

As I'm sure you know, if it's under $400, self-employment tax is not applicable.

If it's over $400, and it's in Box 7, then there is some sort of presumption that is it is subject to self-employment tax. However...

You can probably avoid self employment tax by taking the position that the income was generated by a hobby.

The assertion that it is a prize or award is not incorrect. But this assertion conflicts with certain rebuttable presumptions that arise when the income is reported in Box 7. The hobby argument is more consistent with Box 7.

If it's in Box 3, then it's definitely a prize and it belongs on line 21. Only if it appears in Box 7 do you have to explain why you are not reporting the income on Schedule C. And if you have to explain why it's not on Schedule C, I think the hobby position is a bit clearer than the prize position. The hobby position recognizes that income reported in Box 7 would be self-employment income if it were profit motivated. The prize argument acutally involves taking the position that the income was inaccurately reported in Box 7, and should have been in Box 3.

It is not the reporting documents that determine the taxation of an item. Rather it is the source of the funds that determines its treatment.

With that being said, the reporting documents, whether correct or incorrect, can have a profound influence in how the IRS computer system, and even IRS staff, address a particular matter. Taking the position that a reporting document is incorrectly identifiying the type of income always entails a certain degree of risk.

Maybe I'm overanalyzing this. I work in a strip mall operation, and we get a massive influx of clients right around the end of January. The last two weeks have been a trip and a half.

Burton