Teenager Award Income how reported

[Granny Coral]

I have a client whose 14 yr old son was awarded $11,627 for the sale of a Show first place winner. How do I report this income? Do I use Sched. F with expenses for original purchase and feed and other expenses in raising it? Or do I just use a 1040 and report it as Other Income (no SE required) but makes him have to pay 1400 in taxes for his income.

I think I am missing something in my thinking here.

I have lost my contact with our 'resident farm expert'. I know she posted a message a couple of years ago but I have lost my copy of her messages.

Granny Coral

[GeneInAlabama]

Sounds like a schedule F to me. There is no minimum amount of income or activity to be a farm. Of course if he had had a loss, the IRS would call it a hobby. Kinda like a race car. If there is a loss which there almost always is, it is counted as a hobby, but if a profit is made, IRS wants a schedule C.

[Gail in Virginia]

It does sound like sch F, but if it is a sale of (cow?sheep?horse?) that he raised, it might go on 4797. I wasn't clear from your post whether this was a prize or a sale, or what was involved.

[kcjenkins]

IMRS 07-0000484 – Taxability of Proceeds from Livestock Sales at County Fairs

Issue: Educational assistance is requested regarding the taxability of proceeds from livestock sales at county fairs and the requirements for issuing Form 1099, U.S. Information Return.

Response: Information for the 4-H Fact Sheet was provided to the USDA. Publication 225, Farmer’s Tax Guide provides information for 4-H projects and prize monies from the projects. Information regarding 1099s can be found in the general instructions for Form 1099 on IRS.gov and instruction for Form 1099-MISC.

From Pub 225:

4-H Club or FFA project. 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 educational purposes and not for profit, and is completed by the individual under the rules and economic restrictions of the sponsoring 4-H or FFA organization. Such a project is generally not considered a trade or business.

NOTE THAT IT IS THE NET INCOME THAT IS TAXABLE. The student should have, as part of his project, kept detailed records of his expenses, so determining the net income should be simple if he followed those rules.

[Granny Coral]

Thank you KC, that is just the info I needed. Also, thanks to Gene and gailtaxed for answering me too.

Hope you are improving KC and Don, too.

Granny Coral