SE tax on sale of fair animal

[Bettie Cheek]

Students belong to 4-H or just show an animal and it is sold at the fair. They receive a 1099 for the value(over $600). This is their only income. Are they subject to SE tax.
It is definitely a hobby. However we do have their expenses.

[OldJack]

The 1099 income should be reported as other income on the 1040, line 21 and the expenses on 1040 Sch-A, subject to the 1099 income and the 2% limitation. The income is not subject to SE tax.

[Jiggers]

4-H Club or FFA Project

The 1099 income should be reported as other income on the 1040, line 21 and the expenses on 1040 Sch-A, subject to the 1099 income and the 2% limitation. The income is not subject to SE tax.

This is incorrect. See IRS Pub 225, Farmer's Tax Guide, Page 73.

"If an individual participates in a 4-H Club or FFA project, any net income received from sales or prizes related to the project may be subject to income tax. Report the net income on line 21 of Form 1040. If necessary, attach a statement showing the gross income and expenses. The net income may not be subject to SE tax if the project is primarily for education purposes and not for profit,.....Such a project is generally not considered a trade or business"

I have attached a schedule showing the gross, less the various expenses, to arrive at the net income, and have reported on line 21 of From 1040 with no problems. I do reference the 1099 so the IRS can match it.

[OldJack]

This is incorrect. See IRS Pub 225, Farmer's Tax Guide, Page 73.

"If an individual participates in a 4-H Club or FFA project, any net income received from sales or prizes related to the project may be subject to income tax. Report the net income on line 21 of Form 1040. If necessary, attach a statement showing the gross income and expenses. The net income may not be subject to SE tax if the project is primarily for education purposes and not for profit,.....Such a project is generally not considered a trade or business"

I have attached a schedule showing the gross, less the various expenses, to arrive at the net income, and have reported on line 21 of From 1040 with no problems. I do reference the 1099 so the IRS can match it.

I believe you are misreading the paragraph in pub 225. The paragraph you quote from is under the paragraph heading on page 72, (Pub 225, Page 72 Heading "Who Must Pay Self-Employment Tax?") and not how to report hobby farming income. I agree that the income would not be subject to SE tax.

Pub 225, Page 72 Heading:

Who Must Pay
Self-Employment Tax?

You need to read the section in pub 225 on page 27.

Under the heading “Not-for-Profit Farming”

Limit on deductions and losses. If your ac
tivity is not carried on for profit, take deductions
only in the following order, only to the extent
stated in the three categories, and, if you are an
individual, only if you itemize them on Schedule
A (Form 1040).

Category 1..........
Category 2..........
Category 3..........

[Jiggers]

4-H Club or FFA Project, SE Tax?

The publication is very specific, though it is under SE tax category, on how to report the income and related expenses. These are only for 4-H Club or FFA Projects.

Our State EA chapter issued a newsletter several years ago regarding the same and basically quoted the same. That is where I picked it up and keep it handy for clients when they have this issue.

[OldJack]

>>The publication is very specific<<

I agree that the paragraph is specific in wanting the information or statement reported, but it actually does not say that the expenses are deducted on line 21 and that only the net is taxable.

I can find no code that would allow the netting of such on line 21. Granted, the IRS could probably care less about disallowing a kids 4H expenses.

[Gene V]

>>The publication is very specific<<

I agree that the paragraph is specific in wanting the information or statement reported, but it actually does not say that the expenses are deducted on line 21 and that only the net is taxable.

I can find no code that would allow the netting of such on line 21. Granted, the IRS could probably care less about disallowing a kids 4H expenses.

I agree with Jiggers on this one. It does say Report the net income on line 21 of Form 1040. If necessary, attach a statement showing the gross income and expenses.