Do Children with 4-H income pay income tax?

4-H is an excellent way for youth to learn important skills. One of the skills that young people learn while growing an animal for sale is how to keep the books, and filing that first income tax return. When the animal is sold, the owner is usually issued a 1099MISC or 1099NEC if the sale amount was greater than $600.  This amount is reported on the owner’s income tax return on Schedule 1 Line 8 “Other Income”. (IRS Pub 225) Usually the youth is still a dependent, so they must mark the checkbox on the return that they are dependent of another. The end result is that the child will likely pay 2% income tax on the net proceeds.

What are “net proceeds”?

Net proceeds are the sale price minus the expenses.   For example, the animal sells for $1200. That is not all profit. The animal was bought at the beginning, and expenses were paid prior to sale such as feed and veterinary care. Keeping good records of expenses is important so that the child does not pay more in income tax than necessary. As with anything tax related, keep all those receipts until 3 years after filing the tax return.

Here is a link to a simple spreadsheet to help your 4-H member keep good records: 4-H Spreadsheet