Child acting and self-employment tax 1099-NEC

[jason100]

Both of my children earned nonemployee compensation last year for acting. One was $1700 (minor age) and another was $550 (no longer a minor). The $1700 one got a 1099-NEC from his agency. The $550 one did not. Should both file taxes with this amount as hobby income or as self-employment? The $1700 one also got a W-2 for around $500 for residuals on a prior acting job. Each had total 2023 income less than $3000. 

[MinhT1]

Both your children are considered self-employed and have to file their own tax return as they have received more than $400 of self-employed income. The one getting $550 didn't receive a form 1099-NEC because it was less than $600, but he still has to report this income. The son receiving the form W-2 has to add it to his tax return.

If you claim them as your dependents, they have to indicate in their own returns that they can be claimed as a dependent by another taxpayer.

[jason100]

Thanks for your response. Should I file their taxes with this amount as (a) hobby income or (b) as self-employed - schedule C?

[Vanessa A]

That would depend on the actions and intent of you or your children.  If they are pursuing acting as a "career" or to make money, then this would be considered business activity and it would be reported on Schedule C.  If it is reported on Schedule C, then you also be able to claim expenses associated with their acting careers.

If there is no intention of trying to make money or making this a career, for example, they just like to make YouTube videos for fun but then someone noticed them and asked them to appear in a commercial, this would be more hobby type income as there is no intent to make money on it and they are doing it mostly for personal satisfaction.  If it falls into the hobby category, then expenses are not deductible unless you itemize the return.

Also, when something is reported as a hobby, if it generates a profit for 3 out of 5 years, then it is seen as a business and not a hobby.  And vice versa as well.  If it does not make a profit in 3 of out 5 years, then it is considered a hobby. 

Hobby versus Business Income

To enter your self-employment income click the following:

• Federal
• Income and Expenses
• Show More next to Self-Employment
• Start or Revisit next to Self-Employment
• Yes, to you have any self-employment income or expenses
• Enter the type of self-employment work you do
• Click through a few more screens and you will get to a screen that says "Your XX info"
• Click Looks good
• Then you will come to a screen that says Let's enter the income for your business.  It will give you the option of 1099-NEC or Other self-employed income including the 1099K , cash and checks.  Select the one that applies to you and hit continue
• If you do not select one, it will not let you enter your income
• Enter your self-employment income on the next screen

To enter as Hobby Income select the following:

• Federal
• Income
• Less Common Income
• Hobby Income and Expenses

[jason100]

Thanks again for the responses. Assuming they are pursuing these opportunities for income, can I assume both instances are considered qualified business income (QBI)?

[KrisD15]

Yes, however Acting is considered a Specified Service Trade or Business. SSTB 

This means the Qualified Business Income QBI deduction could be reduced or eliminated depending on income. 

Neither child is anywhere near the threshold, but it may be useful information in the future. 

IRS FAQ Business Income Deduction 

[jason100]

Thank you. How/where is SSTB indicated in TurboTax?

[PatriciaV]

You'll find the questions about QBI and SSTB at the end of the Business Expenses topic for Schedule C. Click Continue and you should see the question, "Is this Qualified Business Income?"

@jason100