Help: Self Employ. Tax on Race Purses
 

Any Accountants in the House?

I did my kids taxes and showed race checks as Misc. Income and
did not show any expenses or a Schedule C. Always do it that way on
his winnings and not have a problem. I received a letter from IRS stating
he owes Self Employment Tax on his winnings extra 15% in addition to the income tax.

He made under 10K and we think it is only a Hobby Income.
Do you guys pay self employment tax on all you race winning as well as
income tax?

Should I do a Schedule C/1040X and call racing a business.....We sure spent way more that we ever win! I thought the IRS would call it hobby income.

Confused in Nevada.... thanks for any help!

Re: Help: Self Employ. Tax on Race Purses
 

Get a hold Of Julie J, she knows everything about this

Re: Help: Self Employ. Tax on Race Purses
 

You don't owe SE tax on this. I'll be at my office all day, call if you want. 209-544-8150

Re: Help: Self Employ. Tax on Race Purses
 

John if it will help I can send Dale down to teach Jon how to drive the stripe. That should take care of pesky winnings.
Jay H.

Re: Help: Self Employ. Tax on Race Purses
 

The way you have prepared the return the IRS is correct. You should file an amended return reporting the earnings on Schedule C and taking expenses up to the extent of the income. You are making the election that this is a hobby which limits the expenses to the extent of your earnings.

D. Marshall, III CPA

Re: Help: Self Employ. Tax on Race Purses
 

just say it was a wash won 10 spent 10

Re: Help: Self Employ. Tax on Race Purses
 

I disagree with this. As a hobby, the expenses would go on his Schedule A, not Schedule C. The income is reported on page 1, Form 1040. You would only file Schedule C if the premise is the activity is for profit.

Re: Help: Self Employ. Tax on Race Purses
 

Thanks Julie, for where the income goes, but how do you offset the winnings with your expenses. Thanks

Re: Help: Self Employ. Tax on Race Purses
 

If you are claiming the racing activity as a business ALL income and expenses go on Schedule C, even if you are claiming a loss. If you have income you are subject to SE tax.

If you are treating it as a hobby, the income goes on line 21, Form 1040. The expenses are deducted on Schedule A as a miscellaneous deduction. The expenses are limited to the activity's gross income. In addition, the expenses are subject to the 2%-of-AGI limitation. A taxpayer engaged in a not-for-profit activity (hobby) is not subject to SE tax on income from that activity.

Re: Help: Self Employ. Tax on Race Purses
 

Thanks for the info !

Re: Help: Self Employ. Tax on Race Purses
 

My son Jon does not file a Schedule A as he is does not itemize and just take a Std. Deduction. It looks like he will file C EZ and have to show the income BUT
NOT show any expenses at all period (NO Schedule. A). He will have to SE taxes on all earnings from the racing since they are all 1099. The racetrackshow " Compensated Non Employee".

Re: Help: Self Employ. Tax on Race Purses
 

Be careful what you say on here

The IRS is watching


Ron

Re: Help: Self Employ. Tax on Race Purses
 

John ~ As we discussed on the phone, just because the 1099 was issued in error does not mean it changes the composition of the income to your son. Race winnings should be reported in box 3 of the 1099 (prizes & awards), rather than box 7 (non-employee compensation, which would be for services rendered). An entry in box 3 means the income is not subject to SE tax. An entry in box 7 leads the IRS to believe the income is SE income.

When a racer gets their 1099's at year-end they should review them. If they are issued incorrectly, they should contact the payor and request a corrected one (I know, good luck in getting that done, right? But stranger things have happened!)

When doing your returns, report the income on Form 1040, line 21. Report it as "hobby winnings", "prizes and awards", etc., anything that will indicate to IRS that the 1099 is not for services rendered.