My kids sold items in the local fair in 2018 and from my understand they have to file a tax return for this "Other" income. From my research it should be reported on Schedule 1 line 21. Can anyone confirm this? (This is the only income my kids have FYI and its less than $5000.)

When reviewing Schedule 1 I noticed that line 32 is for IRA deductions, so I was wondering could I take my kids "Other" income and put it in an IRA and therefore prevent paying any taxes on it?

slop01 said:

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My kids sold items in the local fair in 2018 and from my understand they have to file a tax return for this "Other" income. From my research it should be reported on Schedule 1 line 21. Can anyone confirm this? (This is the only income my kids have FYI and its less than $5000.)

When reviewing Schedule 1 I noticed that line 32 is for IRA deductions, so I was wondering could I take my kids "Other" income and put it in an IRA and therefore prevent paying any taxes on it?

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Kids would have to have "earned income" to qualify for an IRA. Do their auction proceeds count as "earned income"?

Are you saying since the proceeds are "Other" income it is not earned income and therefore not eligible for the IRA deduction?

Yes it can count as Earned income.... but that also means it is SE incone, and subject to SE tax.... so you may lose any tax benefit you have by contributing the the IRA.

BUT if your goal is to contribute to an IRA.... do it!

also, if you put that income on schedule F you can deduct your expenses for raising the animal... just fyi

Per 2018 Publication 225 regarding 4-H Club or FFA projects it states to report the net income as "Other Income" on Schedule 1 line 21, which then rolls up to 1040 line 6 total income.

Then on 1040 line 11 I checked box 3 and listed Form 8615 (Tax for Certain Children Who Have Unearned Income), which was used to determine the amount of income tax as my child is under the age of 18 and has more than 2100 of unearned income.

Does anyone agree with how I am filing this?

Also since the publication listed above states "net income" can I reduce the amount of other income by the expense incurred to purchase and raise the animals?

I think advice to report on Line 21 is the assumption that is an award. If that is the case, then it is not subject to SE i believe.

that also means its not earned income. If you are wanting to use it to make the IRA, then you will have to make it subject to SE tax.

I was only looking at putting the money in an IRA to avoid income taxes. At this point from what I have learned it's not earned income and therefore I cannot put it in an IRA, if reported correctly in accordance with Publication 225.

So now my real question is am I filing correctly?

Report the income on Form 1040 Line 6 and attach Schedule 1 showing the income on line 21. Then also attach Form 8615 showing the amount of income tax that goes on Form 1040 Line 11?

Thanks for your help.

slop - that sounds correct

Thanks gigemhilo

I can't find it on google but my wife did a CPE about kids income. My recollection is that if "self employed income" is less than $5,000 per kid, they don't have to file. Self employed would be mowing or babysitting in our situation.
Unearned income was much lower threshold and the combo mattered as well.

BBDP said:

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I can't find it on google but my wife did a CPE about kids income. My recollection is that if "self employed income" is less than $5,000 per kid, they don't have to file. Self employed would be mowing or babysitting in our situation.
Unearned income was much lower threshold and the combo mattered as well.

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Self-employment income of way less than $5,000 would require a return to be filed. While there may be no income tax due, there would be self-employment tax due.

Kids don't pay any SS, income taxes, etc with incomes below a certain point. This article is 4 years old but explains it better than anything else I found.
https://www.moneycrashers.com/filing-taxes-kids-tax-return-child/
They don't even need to file below these amounts. .... and it's more than $5k total.


It's a pretty significant amount when you have 4 kids.
:-)

From the article: Now that you know how children's income is defined by the IRS, you can figure out their legal obligations. As of tax year 2015, your children must file a tax return if any of these situations apply:

Earned income is greater than $6,300
Unearned income is greater than $1,050
Earned income plus unearned income is more than the greater of: $1,050, or earned income (up to $5,950) plus $350
So, if a child had up to $5,750 of earned income and $200 of unearned income, it is not necessary to file a tax return. Another example would be if a child had $300 of earned income and $500 of unearned income. In this case, it is also not necessary to file a tax return because $300 + $500 = $800, which is less than $1,050. The idea here is that if your children earned a decent amount of money, the bar for being taxed is quite a bit higher than if all they did was cash dividend checks.

Unfortunately my daughters income is for a 4-H/FFA Projects in the amount of $4385 and according to Publication 225 it should be reported on Schedule 1 line 21. That makes it unearned income and therefore she has to file and pay taxes on it. At least that is my understanding of what all I have read.

I am starting to doubt myself.....If the income is reported on Schedule 1 line 21 does that make it unearned income?

Not saying it's right or wrong: I showed animals in HS 20+ years ago..... pretty sure my parents did not file a return for me. I made $5k one year... and about $3k two other years....
and I am not even sure 225 applies to a kid making less than $5k....

If you report it on Line 21 it is unearned income. It will be subject to the kiddie tax rules.

If you report it on Sch F it is earned income. It will not be subject to kiddie tax rules and will have a larger standard deduction which will save income tax. However, it will be subject to self-employment tax that starts at $400 of earned income.

BBDP said:

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Not saying it's right or wrong: I showed animals in HS 20+ years ago..... pretty sure my parents did not file a return for me. I made $5k one year... and about $3k two other years....
and I am not even sure 225 applies to a kid making less than $5k....

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It does

The IRS has come down hard on fair organizations and orgs like them to report the winnings for the individuals. If it goes to the IRS, they will be looking for it on your return.

slop01 said:

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I am starting to doubt myself.....If the income is reported on Schedule 1 line 21 does that make it unearned income?

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Line 21 can actually be either.

rgm97 said:

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If you report it on Line 21 it is unearned income. It will be subject to the kiddie tax rules.

If you report it on Sch F it is earned income. It will not be subject to kiddie tax rules and will have a larger standard deduction which will save income tax. However, it will be subject to self-employment tax that starts at $400 of earned income.

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This is why I would put it on F - if you do that, you can take your feed and other expenses. Just my opinion.

What am I missing..... if it's earned and less than the limit.... they don't pay SS either as far as I can tell and don't have to file.

I'm not a CPA or tax preparer.

2018 Filing Requirements for Dependents
You must file a tax return in any of the following circumstances if you're single, if someone else can claim you as a dependent, and if you're not age 65 or older or blind:

• Your unearned income was more than $1,050
• Your earned income was more than $12,000
• Your gross income was more than the larger of $1,050 or earned income up to $11,650 plus $350

There is a chart C for other situations where you must file which lists the self employment income greater than $400.

You don't need to file anything. Don't worry about it.

Gige
So a kid would not have to file or pay SS if the have earned income of less then $5k?

from that article I posted above:
Income Guidelines

Now that you know how children's income is defined by the IRS, you can figure out their legal obligations. As of tax year 2015, your children must file a tax return if any of these situations apply:

Earned income is greater than $6,300
Unearned income is greater than $1,050
Earned income plus unearned income is more than the greater of: $1,050, or earned income (up to $5,950) plus $350



.
There has always been a loophole for kids making money mowing/babysitting/ etc.... and it's still there based on my wife's CPE class she took in November...

It is basically the same information I gave you.

The 6,300 was the amount of the standard deduction in 2015. So if the child's income was GREATER than the standard deduction, they would be required for to file.

For 2018, the standard deduction is 12,000. So if the child's earned income is greater than 12,000, they would be required to file.


And no, the parents do not have to claim it if it is below these amounts.

The loophole for kids is kinda an unspoken loophole. No income is reported because it was not recorded anywhere.

The thing is, if you have a 1099 issued to the kid, it changes the story. If they meet the filing requirements - 12000 earned or 1015 unearned, or 400 self employed - then yes, they are required to file.

Thanks! What about SS?

SS shows up as SE (Self Employed) tax on the their tax return. It would only apply if they had Self-employed income over 400.

My daughter received a 1099 in the amount of $4385.

So are you telling me I can decide if the income is earned or unearned?

If I say its unearned and go down the kitty tax route it looks like her tax rate is 10%, so it would cost her $438.50 in federal income tax.

If I say its earned I then can deduct any expenses, but have to pay SE tax of 15.3%, which would cost her $670.91 but she would not have to pay any federal income tax b/c its below the $12,000 limit.

So with my lack of knowledge regarding how this should be filed I decided to call someone this morning to see how much they would charge to file for my daughter. Their fee was $250.00, which to me seems crazy.

slop01 said:

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So with my lack of knowledge regarding how this should be filed I decided to call someone this morning to see how much they would charge to file for my daughter. Their fee was $250.00, which to me seems crazy.

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Well....

1) they know how to do it
2) they have expenses to cover
3) professionals have risks, education, and experience and that factors into what they charge

Thanks for all your help. I didn't mean to offend you about how much you charge.

I've reported it both ways but I do not switch back and forth between the two from year-to-year.

slop01 said:

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Thanks for all your help. I didn't mean to offend you about how much you charge.

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Always shop around if you feel a fee isn't in line with expectations. I'm not a financial professional (I'm a lawyer), but I have had potential clients that go other routes due to costs. That said, I do try to work with people on fees if warranted.