College student with 1099-NEC for one off work and 1098-T

[imaattion]

Again, as a couple of us have stated, the choice of whether it is reported "as other income or it can be reported as self employment" is not one of convenience or financial gain, it is determined by what it is--as a one time gig, not for profit it is other income. As an ongoing endeavor for profit it is self employment. As an earlier commenter pointed out the IRS provides guidance as to which it is.

IRS Tax Tip 2022-57, April 13, 2022

A hobby is any activity that a person pursues because they enjoy it and with no intention of making a profit. People operate a business with the intention of making a profit. Many people engage in hobby activities that turn into a source of income. However, determining if that hobby has grown into a business can be confusing.

To help simplify things, the IRS has established factors taxpayers must consider when determining whether their activity is a business or hobby.

These factors are whether:

• The taxpayer carries out activity in a businesslike manner and maintains complete and accurate books and records.
•  The taxpayer puts time and effort into the activity to show they intend to make it profitable.
• The taxpayer depends on income from the activity for their livelihood.
• The taxpayer has personal motives for carrying out the activity such as general enjoyment or relaxation.
• The taxpayer has enough income from other sources to fund the activity
• Losses are due to circumstances beyond the taxpayer's control or are normal for the startup phase of their type of business.
• There is a change to methods of operation to improve profitability.
• Taxpayer and their advisor have the knowledge needed to carry out the activity as a successful business.
• The taxpayer was successful in making a profit in similar activities in the past.
• Activity makes a profit in some years and how much profit it makes.
• The taxpayer can expect to make a future profit from the appreciation of the assets used in the activity.

All factors, facts, and circumstances with respect to the activity must be considered. No one factor is more important than another.

If a taxpayer receives income from an activity that is carried on with no intention of making a profit, they must report the income they receive on Schedule 1, Form 1040, line 8

[spaceman91]

@hbl3973 , @imaattion, @Vanessa A  

It was definitely a one off. There was a possibility that she could have pursued performing arts (not fine arts) 🙂 but she made a choice when she applied to college and is now almost done with freshman year of college and is pretty much on a pre-med track.  The summer thing was an opportunity that came up and was kind of her last performances.

So if I read all of this correctly:

1. She is required to file, even though her total "unearned income" between the show and the check for attending admitted student day was $3500 and she had no other income (although I'm not really sure where to put that grant - other other income?) 

2. Her 1099-NEC should be reported as other income

3. The standard deduction for other income is $1150

3a. The combination of 1-3 is going to make her file an 8615 form which will make her taxes higher

4a. On the 1098-T her box 5 is much smaller than box 1 and was a drop towards tuition only - nothing to file here for either her or us

4b. I do not qualify for AOC or LLC

5. No intention of paying more taxes for myself or for her to invest in IRAs for her when her tuition is huge and my personal 401k accounts have been doing nothing but bleeding everything I put into them and more for 15 months now.  I can set money on fire in my back yard.  :(   I do appreciate the suggestion, but unfortunately I don't have extra money for investing right now.

Did I get everything?

[imaattion]

Yes, you got it correctly.

Just to be sure I am not missing anything, how much was the 1099 NEC and what is the $3500 "check for attending admitted student day" On what form was it reported and what did she do to earn it?

As you will see what you do the 8615, the standard deduction is $1150 and the next $1150 is taxed at her tax rate. It is only the amount above that which is taxed at your rate.

[spaceman91]

Sorry, she didnt recieve $3500 for admitted student day, to clarify, I said the total of her pay and the check to go to admitted student day and thus her total "unearned income" was $3500.  She received a check from her university to attend admitted student day, many schools offered to give money to attend admitted student days to help offset cost as they try to convince you to go there. But they also tell you that it is considered taxable and they ask for your SS# before issuing the check.  They did not however send any tax forms in 2023 to document it.

[KrisD15]

"4a. On the 1098-T her box 5 is much smaller than box 1 and was a drop towards tuition only - nothing to file here for either her or us

4b. I do not qualify for AOC or LLC"

This is a long thread, so I might have missed something, but if you cannot claim an Education credit because of your income, and if claiming the student makes no difference on your return, the dependent student may claim the non-refundable portion of the American Opportunity Tax Credit (if all other requirements are met)

This is done by the dependent student selecting "Another taxpayer can claim the student on their tax return" and then also selecting "Another taxpayer will not claim the student in 2022"

(You also do not claim the student)

Enter the 1098-T in her TurboTax program and she should get the non-refundable portion (since you say Box 5 is less than Box 1) and that should lower her tax liability. 

This is not advantageous often, but may be in your situation.  

See Pub 970 Page 20

@spaceman91 

[imaattion]

I'm not sure if you said claiming your daughter as a dependent gave you no benefit -- it should get you the $500 credit for other dependents.

That aside, if your daughter was 19 and NOT a full time student, and you do not claim her as a dependent on your return, then she would qualify for the Refundable portion of the AOC.

If she is 19 and is a full time student, none of the refundable credit can be claimed.

In no circumstances can the non-refundable credit be claimed.

[DMarkM1]

It appears she has two income sources one is the form 1099-NEC for the one-time show performance and one for a one-time payment from the university to cover expenses to attend a "Student Day."  Assuming the 1099-NEC she received shows net self-employment pay over $400 she will have a tax return filing requirement.  

First, she received the amount shown on the 1099-NEC for a performance which by definition is earned income and since she was not an employee of the company, she was self-employed.  The form should be entered in the "Wages and Income" section using the "Self-employed 1099-NEC" topic.  It is probable there will not be any income tax on this amount, but it is subject to self-employment taxes.  

Next, she would enter the cash payment received for the "Student Day" as "Other Reportable Income."  In the "Wages and Income" section scroll down to "Less Common Income" and select "Miscellaneous" and then "Other Reportable Income."  Answer "Yes" and enter a description such as "Student Day" and enter the amount paid.  This is an example of income that is not pay for a service or performance.  Again it is likely there will not be any tax on this income.

Since it appears she is a full-time student and would be a dependent on your return, the form 1098T would be entered on your tax return for the education credits.