Help: Self Employ. Tax on Race Purses

[GTX JOHN]

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!

[David Lee]

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

[Julie Jordan]

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

[Jay H.]

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.

[163Vsg]

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

[Mickey Whaley]

just say it was a wash won 10 spent 10

[Julie Jordan]

Originally Posted by 163Vsg

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

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.

[ss3011]

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

[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 !