Taxes - parents receiving 1099-Misc for minor son’s earnings

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jchris
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Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by jchris » Tue Sep 26, 2017 5:46 pm

Hi everyone,

My youngest son (16) has a successful YouTube channel, and income from Google AdSense has reached a couple hundred dollars per month. However, Google will not allow the AdSense account to be opened in the name of a minor, so my wife had to put her name on the account when he created it a couple of years ago. This means that the form 1009-Misc that we receive from Google is going to be in my wife’s name, so I don’t think we can use it to file a tax return in my son's name.

This was no big deal for the first couple of years, because his income from advertisements viewed on his channel was very low. But this year, his AdSense income is really starting to climb as his channel has gotten more popular and he gets more subscribers. We are projecting that he is going to have at least a couple thousand dollars of income this year.

So my problem is – how do I deal with this income on our 2017 tax return (we file MFJ) in a way that doesn’t get it taxed at my marginal income tax rate (25%)? One friend who is a tax guy told me that we could create a sole proprietorship in wife’s name, treat son as an employee, file a Schedule C and deduct all the income received as income paid to employee (son). This seems legal, and son did in fact do all of the work, but it requires us to jump through some hoops to get an Employer ID number, file W-2 and W-3 forms, etc.

Is there an easier way to deal with this? Thanks for any advice you can provide!

Jchris

aristotelian
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by aristotelian » Tue Sep 26, 2017 5:59 pm

The income is in your name. It's getting taxed at your rate.

Jags4186
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by Jags4186 » Tue Sep 26, 2017 6:11 pm

The easiest way to deal with it is to have your son pay the taxes out of his earnings and not worry about it. When he is 18 he likely become owner of the channel and file for himself.

jchris
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by jchris » Tue Sep 26, 2017 6:17 pm

I agree that would be easiest, but it seems unfair for him to pay 25% tax when he should be paying 0%, if he were able to file at his own marginal rate. I am not looking to do anything against the law - just looking for legal methods of filing that don't involve getting this taxed at our marginal rate. Since the actual labor is completely his, it seems there should be a way to file the taxes to reflect this.

CFM300
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by CFM300 » Tue Sep 26, 2017 6:30 pm

Can't your wife just give the money to your son and send him a 1099-MISC? In other words, treat him as an independent contractor, rather than an employee. She'll report the income on Schedule C and also deduct the same amount an as expense. Your son can then file his own return using the 1099-MISC your wife sent him.

jchris
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by jchris » Tue Sep 26, 2017 6:50 pm

I was not aware that we could do our own 1099-Misc for son. How is that done?

Spirit Rider
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by Spirit Rider » Tue Sep 26, 2017 7:47 pm

jchris wrote:
Tue Sep 26, 2017 6:50 pm
I was not aware that we could do our own 1099-Misc for son. How is that done?
It's not done legitimately. People think you can just issue a 1099 to anybody for anything. This is not true.

Just like household help, the IRS does not consider a 1099-MISC client-contractor relationship between immediate family members a hands-off transaction and wants this to be done as employer-employee relationship.

One other thing. While it is entirely legitimate to hire your son as an employee, his payroll should not consume the entire net business profit of the business. To pass the smell test, I would suggest the business have at least a nominal net business profit enough to pay SE tax and probably not less than 10% - 20% of net business profit before his payroll for greater amounts.

Note: Your best bet is a sole proprietorship and not a corporation of any kind. There is no FICA required for children < 18 in a self-employed business owned by a parent. There also is no FUTA insurance for children < 21.

RudyS
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by RudyS » Tue Sep 26, 2017 7:57 pm

Seems like a case of nominee income. See: http://www.cgcpa.pro/nominees-have-1099 ... uirements/ I assume he would then do a Schedule C when filing his taxes.

Second thought - parent will probably get a CP2000 letter asking about that income. You should be able to send a letter of explanation describing the situation.
Last edited by RudyS on Tue Sep 26, 2017 8:09 pm, edited 1 time in total.

jchris
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by jchris » Tue Sep 26, 2017 8:05 pm

Spirit Rider wrote:
Tue Sep 26, 2017 7:47 pm
jchris wrote:
Tue Sep 26, 2017 6:50 pm
I was not aware that we could do our own 1099-Misc for son. How is that done?
It's not done legitimately. People think you can just issue a 1099 to anybody for anything. This is not true.

Just like household help, the IRS does not consider a 1099-MISC client-contractor relationship between immediate family members a hands-off transaction and wants this to be done as employer-employee relationship.

One other thing. While it is entirely legitimate to hire your son as an employee, his payroll should not consume the entire net business profit of the business. To pass the smell test, I would suggest the business have at least a nominal net business profit enough to pay SE tax and probably not less than 10% - 20% of net business profit before his payroll for greater amounts.

Note: Your best bet is a sole proprietorship and not a corporation of any kind. There is no FICA required for children < 18 in a self-employed business owned by a parent. There also is no FUTA insurance for children < 21.
Thanks for this advice!

JBTX
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by JBTX » Tue Sep 26, 2017 8:15 pm

If you do a schedule c you can also deduct business expenses. Maybe the cost of a computer, or some portion of ISP or phone/ data, some "office supplies", etc. You could probably reduce the net income to a fairly small amount. You'd just have to have receipts and be able to legitimately argue the expenses are related to the business.

CFM300
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by CFM300 » Tue Sep 26, 2017 8:26 pm

Spirit Rider wrote:
Tue Sep 26, 2017 7:47 pm
the IRS does not consider a 1099-MISC client-contractor relationship between immediate family members a hands-off transaction and wants this to be done as employer-employee relationship.
You know way more about this stuff than I do, but this seems strange to me. Because the relationship between the mom and son as described by the OP does not sound at all like an employer-employee. The mom is not in any way directing the work done by the son. Might this unusual case be an exception to what the IRS typically wants?

MarkNYC
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by MarkNYC » Tue Sep 26, 2017 8:32 pm

This is clearly nominee income. The most practical way to report is to file a schedule C listing the 1099-MISC income, then list the same amount as "other expenses" with the description "nominee" and list the SSN of the correct recipient of the income, resulting in no gain or loss on the Schedule C. The person receiving the 1099 should issue a 1099 to the actual income recipient. This nominee 1099 issuance is explained in the general instructions to Form 1099-MISC.

Reporting it this way accomplishes two things. First, it avoids receiving a notice from the IRS for unreported income based on the 1099 copy they received. Second, the tax return result has the taxpayer paying tax on the correct amount of income he/she actually received during the year, which is the primary obligation of the taxpayer and what the IRS cares about most.

Katietsu
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by Katietsu » Tue Sep 26, 2017 9:05 pm

MarkNYC wrote:
Tue Sep 26, 2017 8:32 pm
This is clearly nominee income. The most practical way to report is to file a schedule C listing the 1099-MISC income, then list the same amount as "other expenses" with the description "nominee" and list the SSN of the correct recipient of the income, resulting in no gain or loss on the Schedule C. The person receiving the 1099 should issue a 1099 to the actual income recipient. This nominee 1099 issuance is explained in the general instructions to Form 1099-MISC.

Reporting it this way accomplishes two things. First, it avoids receiving a notice from the IRS for unreported income based on the 1099 copy they received. Second, the tax return result has the taxpayer paying tax on the correct amount of income he/she actually received during the year, which is the primary obligation of the taxpayer and what the IRS cares about most.
Yes. The income belongs to the son. Please follow these instructions.

Spirit Rider
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by Spirit Rider » Tue Sep 26, 2017 9:36 pm

MarkNYC is correct. Follow his advice.

I completely spaced about nominee 1099-MISC income. This is much more commonly encountered on other types of income.

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FiveK
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by FiveK » Tue Sep 26, 2017 10:53 pm

No idea which is "more correct" but how do i add an offsetting entry for a 1099-misc - TurboTax Support shows a different procedure.

itstoomuch
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by itstoomuch » Tue Sep 26, 2017 11:05 pm

Create a custodial account with wife as the custodian, son is the owner and TIN of record.
Or open a joint account with son as the primary and reportable TIN and co-owner is the wife.
Don't forget the self-employment taxes. :oops:
Your son could have a substantial roth built up by age 21. :dollar

Smart kid. :moneybag
Lucky You :beer
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

jchris
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Re: Taxes - parents receiving 1099-Misc for minor son’s earnings

Post by jchris » Wed Sep 27, 2017 5:53 am

Thanks everyone for the guidance. We will follow the nominee income procedure that MarkNYC provided. Really appreciate your help!

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