Help: Self Employ. Tax on Race Purses

[Julie Jordan]

Originally Posted by ss3011

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

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.

[ss3011]

Thanks for the info !

[GTX JOHN]

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".

[Andys dad]

Be careful what you say on here

The IRS is watching


Ron

[Julie Jordan]

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.