My 13 year old child sells arts

[wife-mom-math]

Just to clarify: this income is from sales at etsy, not from working with employer or investment/interest.

[DoninGA]

If the child has income of $400 or more from their sales they are required to file a tax return to report the self-employment income.

[wife-mom-math]

I see, thanks for your reply.

A follow up question: Etsy notifies that it will send 1099-K in Jan 2022 because my child's sales is above $1k. Should I request that this form be sent under my child's name/SSN? (instead of my name/SSN)?

[rjs]

Etsy will send the 1099-K to the name and SSN on the Etsy account that made the sales. From what you said, it sounds like this is the child's business, so the Etsy account should be in the child's name. You probably can't change it now, after the sales have been made.

If the child has been using your Etsy account, then it's your business, not the child's, and you will have to report it on your own tax return. Your child will probably pay less tax if the business is in the child's own name and reported on the child's tax return. If the Etsy account is in your name, and that's not the way you want it, change it for 2022, or have your child set up a new account in the child's own name for 2022.

As far as taxes are concerned, the child's age doesn't matter.

[Opus 17]

@wife-mom-math 

definitely. Although Etsy may be reluctant to do that because of the child‘s age. You will have to ask them.

Regardless of who’s name is on the 1099, income earned by a child who is providing goods or performing a service is always reported on a tax return in the child‘s name and is never added to a parent‘s tax return. Even if the 1099 is issued in your name, you will report the income on your child‘s tax return and not your own.

You and your child have a great deal of learning to do.  If your child is old enough to make money with their art, they are old enough to start learning about taxes.  You may want to get a Lasser’s guide or another reputable tax book to start with.  

To start with, your child must keep accurate business records and keep track of their gross income and their expenses, which can include raw materials and shipping costs.  The child will file a tax return that includes a schedule C that will report their gross income and subtract their ordinary and necessary business expenses. The child will pay 0-22% income tax (depending on their total income) +15% self-employment tax on their net income after deducting expenses.  If the child owes more than $1000 in total tax, they are required to make quarterly estimated tax payments to the IRS and they can be penalized if they do not make these tax payments. The penalty would not apply the first year that the child is in business, but the penalty will apply in the future so you need to learn about it for 2022.

[wife-mom-math]

Thank you for your reply.

Unfortunately, when I tried to set the account under her name using her real birthday, it's not even allowed, because she's still under 18. So I have to put it under my name / bio. So, 1099-K-wise, it'll be sent under my name. 

But when I do our tax, should we put this as her income or my income?

[Opus 17]

@wife-mom-math 

If your child is performing the work, it is your child’s income and must be reported on a tax return in your child’s name, no matter who the 1099 is issued to.

When preparing your child‘s tax return, you will not indicate that they received a 1099. However, you must report their gross business income as “income not reported on a 1099.“ This is typical, most small businesses do not get 1099-K or 1099-NEC forms.

When preparing your own tax return, there are three options to deal with receiving a 1099K that does not belong to you.

1. Ignore it. The IRS may send you a letter asking you to report this as income, and you would reply to the letter by explaining that this is your child’s income, that you were not allowed to register an account in their name, and providing a copy of their tax return to show that they did report the income.

2. Report the income as miscellaneous income in the 1099K section. Then create a second item of miscellaneous income with a negative amount matching the 1099K to offset it. Give a description for the negative offset amount as something like “child‘s income reported under parent‘s name.“ This will allow you to e-file, and it technically reports the 1099K, but you may still get a letter from the IRS asking for more information.

3. Leave the 1099K off your own tax return. File by mail instead of e-filing. Attach a copy of the 1099K and a letter of explanation to your e-filed tax return. You don’t need to give details of your child‘s business, just give their name and Social Security number and let the IRS know that this was income they earned and will be reported on their tax return. This is the official IRS solution when you receive a 1099 that is not your income. However, because of the delays associated with filing by mail, it may not actually be the best solution.

Finally, a word about the TurboTax program. If you file online, you can only file one person‘s tax return per online account, your child would need a second online account in their own name and they will be charged a separate filing fee. The small business version of TurboTax online is the most expensive version.  It may be more cost-effective to buy a copy of TurboTax home and business version on a CD or download from a discount retailer such as target, Costco, or Amazon to install on your own Mac or PC.  The desktop program can prepare an unlimited number of individual tax returns and can e-file the first five for free. State e-filing is an additional $25 per return, but the cost of the home and business program plus 2 state E-files (one for the parents and one for the child) will probably be less than the cost of two separate online tax returns.

[DoninGA]

In addition to the other great information provided, note that if the child will be filing their own tax return for self-employment, their tax return cannot be e-filed since the child is under the age of 16.  Their tax return can only be printed, signed, dated and mailed to the IRS.

[wife-mom-math]

Thank you @DoninGA for the info you've provided. 

[wife-mom-math]

Thank you @Opus 17 for the detailed info! 🙂 I'll take time to digest it. 

[wife-mom-math]

Thank you @rjs for the info provided.