Selling Breast Milk - 1099-MISC SCH C or Line 21?

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kinetic2255
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Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by kinetic2255 » Thu Apr 04, 2019 10:26 pm

True story: My wife, being the hustler she is, decided to sell her excess breast milk to a company in CA (not an employee) for $$. She received a 1099-MISC with $1068 marked in box 7. This is not associated with her normal employment and was a one time event not a business. All bags were supplied by the company and we already owned the pump and bottles for normal use. TT generated a Schedule C - Self employed income, which seems a bit much. I've asked two co-worker CPA's and one says turbotax is correct and the other says to ignore the 1099-MISC and instead report it on my 1040 Line 21 as 'other income'. The rest of the interweb is equally conflicted:

Example from random website: "I called the IRS Customer Support and asked for their view of this. They said that Breast Milk is not reportable. Breast Milk is considered merchandise, and the company that is paying me $1.00/ounce for the product should not be issuing me a 1099-MISC for these payments. Establishing a business (self-employed) to produce or sell Breast Milk wouldn’t be a recognized business as the volume produced and duration is uncertain."

Reading through the IRS pubs for 1099-MISC and other income it sounds like a Schedule C is required; however, in this situation it makes much more 'common sense' to be on line 21. One suggestion I read was to file with Schedule C and then file an amended return changing to line 21 with an explanation.

What say the bogleheads?

livesoft
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by livesoft » Thu Apr 04, 2019 11:07 pm

Selling blood plasma on a regular basis is considered earned income and a Schedule C is done.

I don't think it really matters to the IRS which way to report the income from selling breast milk. If they don't like the way it is reported, then they will let you know eventually.
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InMyDreams
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by InMyDreams » Thu Apr 04, 2019 11:23 pm

livesoft wrote:
Thu Apr 04, 2019 11:07 pm

I don't think it really matters to the IRS which way to report the income
Doesn't it make a difference in self-employment tax? OP, did you look to see if TT added self employment when you reported on Sched C?

Jmh04j
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by Jmh04j » Fri Apr 05, 2019 5:00 am

kinetic2255 wrote:
Thu Apr 04, 2019 10:26 pm
Breast Milk is considered merchandise, and the company that is paying me $1.00/ounce for the product should not be issuing me a 1099-MISC for these payments. Establishing a business (self-employed) to produce or sell Breast Milk wouldn’t be a recognized business as the volume produced and duration is uncertain."[/i]
What is the name of the company? We probably have enough breast milk to retire in my garage fridge....

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HueyLD
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by HueyLD » Fri Apr 05, 2019 6:44 am

Did you flip over form 1099-misc and read the instructions on the back of the form for line 7 as follows:

“If you are not an employee but the amount in this box is not SE income (for example, it is income from a sporadic activity or a hobby), report this amount on the “Other income” line of Schedule 1 (Form 1040).”

Sometimes, it is extremely helpful to read the little piece of paper you received.

Cpadave
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by Cpadave » Fri Apr 05, 2019 6:59 am

You can report it as other income subject to SE tax. Unless you want to deduct certain expense against it. Then you can report it on Sch C

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by leeks » Fri Apr 05, 2019 7:04 am

HueyLD wrote:
Fri Apr 05, 2019 6:44 am
Did you flip over form 1099-misc and read the instructions on the back of the form for line 7 as follows:

“If you are not an employee but the amount in this box is not SE income (for example, it is income from a sporadic activity or a hobby), report this amount on the “Other income” line of Schedule 1 (Form 1040).”

Sometimes, it is extremely helpful to read the little piece of paper you received.
+1

EdNorton
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by EdNorton » Fri Apr 05, 2019 8:26 am

I'm a retired CPA, line 21, not Sch C. Most likely a one time event. Not subject to SE tax.
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InMyDreams
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by InMyDreams » Fri Apr 05, 2019 9:38 am

EdNorton wrote:
Fri Apr 05, 2019 8:26 am
... line 21, not Sch C. Most likely a one time event. Not subject to SE tax.
What a shame - this year, self employed earnings allow, for some, deduction of health insurance above the line.
To deduct it, the health insurance premium cannot be subsidized by an employer. Probably not the OP's case.

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by Texanbybirth » Fri Apr 05, 2019 9:45 am

Jmh04j wrote:
Fri Apr 05, 2019 5:00 am
kinetic2255 wrote:
Thu Apr 04, 2019 10:26 pm
Breast Milk is considered merchandise, and the company that is paying me $1.00/ounce for the product should not be issuing me a 1099-MISC for these payments. Establishing a business (self-employed) to produce or sell Breast Milk wouldn’t be a recognized business as the volume produced and duration is uncertain."[/i]
What is the name of the company? We probably have enough breast milk to retire in my garage fridge....
Same here. FIRE has never seemed more attainable than right now.
"Knowledge and innocence are both excellent things, and they are both very funny. But it is right that knowledge should be the servant and innocence the master." - GK Chesterton

Ybsybs
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by Ybsybs » Fri Apr 05, 2019 9:52 am

Texanbybirth wrote:
Fri Apr 05, 2019 9:45 am
Jmh04j wrote:
Fri Apr 05, 2019 5:00 am
kinetic2255 wrote:
Thu Apr 04, 2019 10:26 pm
Breast Milk is considered merchandise, and the company that is paying me $1.00/ounce for the product should not be issuing me a 1099-MISC for these payments. Establishing a business (self-employed) to produce or sell Breast Milk wouldn’t be a recognized business as the volume produced and duration is uncertain."[/i]
What is the name of the company? We probably have enough breast milk to retire in my garage fridge....
Same here. FIRE has never seemed more attainable than right now.
If you are seriously considering this, act quickly. There's a high demand by neonatal intensive care units (among others) for breastmilk from safe donors but even properly stored in deep freezers, it degrades over time.

Texanbybirth
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by Texanbybirth » Fri Apr 05, 2019 9:58 am

Ybsybs wrote:
Fri Apr 05, 2019 9:52 am
Texanbybirth wrote:
Fri Apr 05, 2019 9:45 am
Jmh04j wrote:
Fri Apr 05, 2019 5:00 am
kinetic2255 wrote:
Thu Apr 04, 2019 10:26 pm
Breast Milk is considered merchandise, and the company that is paying me $1.00/ounce for the product should not be issuing me a 1099-MISC for these payments. Establishing a business (self-employed) to produce or sell Breast Milk wouldn’t be a recognized business as the volume produced and duration is uncertain."[/i]
What is the name of the company? We probably have enough breast milk to retire in my garage fridge....
Same here. FIRE has never seemed more attainable than right now.
If you are seriously considering this, act quickly. There's a high demand by neonatal intensive care units (among others) for breastmilk from safe donors but even properly stored in deep freezers, it degrades over time.
Sorry, I was being silly. We donate the extra. Thank you for seriously highlighting the need though!
"Knowledge and innocence are both excellent things, and they are both very funny. But it is right that knowledge should be the servant and innocence the master." - GK Chesterton

megabad
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by megabad » Fri Apr 05, 2019 11:55 am

Seems like you already have some good responses, but just wanted to say thanks for posting. I had no idea this was a thing. Bogleheads teaches me something everyday.

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kinetic2255
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by kinetic2255 » Fri Apr 05, 2019 12:34 pm

Thanks for the responses thus far.
InMyDreams wrote:
Thu Apr 04, 2019 11:23 pm
livesoft wrote:
Thu Apr 04, 2019 11:07 pm

I don't think it really matters to the IRS which way to report the income
Doesn't it make a difference in self-employment tax? OP, did you look to see if TT added self employment when you reported on Sched C?
TT automatically generated self employment questions to populate Schedule C. So, i need to find out what additional income section will populate line 21. And remove the 1099-Misc section.
leeks wrote:
Fri Apr 05, 2019 7:04 am
HueyLD wrote:
Fri Apr 05, 2019 6:44 am
Did you flip over form 1099-misc and read the instructions on the back of the form for line 7 as follows:

“If you are not an employee but the amount in this box is not SE income (for example, it is income from a sporadic activity or a hobby), report this amount on the “Other income” line of Schedule 1 (Form 1040).”

Sometimes, it is extremely helpful to read the little piece of paper you received.
+1
Fair point. In my defense, the way TT walks you through the form it doesn't provide this 'out' as an option.
Texanbybirth wrote:
Fri Apr 05, 2019 9:45 am
Jmh04j wrote:
Fri Apr 05, 2019 5:00 am
kinetic2255 wrote:
Thu Apr 04, 2019 10:26 pm
Breast Milk is considered merchandise, and the company that is paying me $1.00/ounce for the product should not be issuing me a 1099-MISC for these payments. Establishing a business (self-employed) to produce or sell Breast Milk wouldn’t be a recognized business as the volume produced and duration is uncertain."[/i]
What is the name of the company? We probably have enough breast milk to retire in my garage fridge....
Same here. FIRE has never seemed more attainable than right now.
Company is prolacta bioscience. She needed a letter from her doc, bloodwork, etc so its a bit of a headache. There is a minimum they want you to meet as well. We were very thankful for the excess as we are aware of the challenges in this arena.

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HueyLD
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by HueyLD » Fri Apr 05, 2019 2:20 pm

You need to go back to the 1099-MISC input screens and answer each and every question VERY SLOWLY!!

One of the questions says: “Does one of these uncommon situations apply?” If you answer the question correctly, it will ask you a few more questions and put the $1068 on line 21.

Yes, TT knows what it is doing, but the user must answer the questions correctly.

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by aristotelian » Fri Apr 05, 2019 3:00 pm

livesoft wrote:
Thu Apr 04, 2019 11:07 pm
Selling blood plasma on a regular basis is considered earned income and a Schedule C is done.

I don't think it really matters to the IRS which way to report the income from selling breast milk. If they don't like the way it is reported, then they will let you know eventually.
Misc Income is not subject to SE Tax, so it does make a difference.
EdNorton wrote:
Fri Apr 05, 2019 8:26 am
I'm a retired CPA, line 21, not Sch C. Most likely a one time event. Not subject to SE tax.
HueyLD wrote:
Fri Apr 05, 2019 6:44 am
Did you flip over form 1099-misc and read the instructions on the back of the form for line 7 as follows:

“If you are not an employee but the amount in this box is not SE income (for example, it is income from a sporadic activity or a hobby), report this amount on the “Other income” line of Schedule 1 (Form 1040).”

Sometimes, it is extremely helpful to read the little piece of paper you received.
She produced $1000 of breast milk. Certainly not a one time event. She must have spent hours doing this, and her motive is profit. I am not an expert but I would do the Schedule C.

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by thx1138 » Fri Apr 05, 2019 3:18 pm

aristotelian wrote:
Fri Apr 05, 2019 3:00 pm
She produced $1000 of breast milk. Certainly not a one time event. She must have spent hours doing this, and her motive is profit. I am not an expert but I would do the Schedule C.
No. The point is she isn't constantly pumping out milk as a business over multiple years. It is clearly "sporadic" in that she had excess milk to sell on this occasion that is very unlikely to be repeated. The fact it took lots of hours and was over multiple sessions is irrelevant. There are many similar situations outlined in prior IRS decisions including things like getting a lump sum payment for a book you write when you aren't going to be writing any more books going forward despite the fact it took a lot of effort and you sat down more than once to do writing. Even honoraria from multiple sources year after year can be declared "other income" if they are incidental payments (i.e. equivalent to "thank you for your time" gifts) that are irregular and you aren't building a career or business of sitting on academic committees.

I'd definitely file under "other income". If the IRS decides they don't like it they'll send paperwork reflecting their recommended change of Sched C. and up the tax owed due to SE tax. In the unlikely event that occurred the OP could agree with the IRS and just write a check or dispute it.

EDIT: I'll add that TurboTax in particular tends to default everything in that 1099 box into Sched C income unless as another poster noted you are very careful in filling out the questions. This is one reason I gave up on TT a long time ago - it was far more frustrating to work through its cack-handed efforts to "help" me fill out my taxes. If not every year at least every other year involved finding the wrong boxes filled out on the forms and then reverse engineering their questions to get things in the correct place.
Last edited by thx1138 on Fri Apr 05, 2019 3:26 pm, edited 1 time in total.

blackburnian
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by blackburnian » Fri Apr 05, 2019 3:26 pm

I had a similar situation with royalties from a book, after I had stopped being a writer and had a regular job. Turbotax wanted me to put it on Schedule C but somehow (I can't remember how anymore) I managed to enter it where it belonged, under "other income." I did this for several years and never had any problem from the IRS.

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kinetic2255
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by kinetic2255 » Fri Apr 05, 2019 8:10 pm

HueyLD wrote:
Fri Apr 05, 2019 2:20 pm
You need to go back to the 1099-MISC input screens and answer each and every question VERY SLOWLY!!

One of the questions says: “Does one of these uncommon situations apply?” If you answer the question correctly, it will ask you a few more questions and put the $1068 on line 21.

Yes, TT knows what it is doing, but the user must answer the questions correctly.
I carefully and slowly considered the question "Does one of the uncommon situations apply"
  • Owned a farm Nope
  • On a board of directors; this was wife's fee Nope
  • Related to wife's interest in gas or oil property Nope
  • Commission, bonus, prize, award, etc. from a payer who was not wife's employerNope(maybe?)
  • Wife's employer reported this extra money on a 1099-MISC but it should have been on a W-2 Nope, (maybe?)
  • Bonus, prize, award, trip, or extra benefit from wife's employerNope
  • Money from scholarship or fellowship Nope
  • Money from lawsuit settlement Nope
  • Wife was in research study and this was the payment Nope
  • Manufacturers incentive payment Nope
  • None of these apply Yup
Next question: Did it involve work that like wifes main job? = No
Next question: Check the year - 2018 Only
Next question: Did the Lactation involve an intent to earn money? Yes = Schedule C. No = line 21.

I walked this through at least a couple of the other 'maybe' bullets like "1099-MISC but should have been W-2" and "commission, bonus, prize etc". On each, the trigger is the answer to the 'intent to earn money' question. The intent was to make money. So, can you see why this is a bit confusing to me? I wouldn't intuitively missinform TT by answering no to get the line 21 result.
thx1138 wrote:
Fri Apr 05, 2019 3:18 pm
aristotelian wrote:
Fri Apr 05, 2019 3:00 pm
She produced $1000 of breast milk. Certainly not a one time event. She must have spent hours doing this, and her motive is profit. I am not an expert but I would do the Schedule C.
No. The point is she isn't constantly pumping out milk as a business over multiple years. It is clearly "sporadic" in that she had excess milk to sell on this occasion that is very unlikely to be repeated.
Correct and unlikely to be repeated. Unless, my wife agree's to stay child bearing until full retirement age $$$ :D
thx1138 wrote:
Fri Apr 05, 2019 3:18 pm
I'd definitely file under "other income". If the IRS decides they don't like it they'll send paperwork reflecting their recommended change of Sched C. and up the tax owed due to SE tax. In the unlikely event that occurred the OP could agree with the IRS and just write a check or dispute it.
With penalties I assume?
thx1138 wrote:
Fri Apr 05, 2019 3:18 pm
EDIT: I'll add that TurboTax in particular tends to default everything in that 1099 box into Sched C income unless as another poster noted you are very careful in filling out the questions. This is one reason I gave up on TT a long time ago - it was far more frustrating to work through its cack-handed efforts to "help" me fill out my taxes. If not every year at least every other year involved finding the wrong boxes filled out on the forms and then reverse engineering their questions to get things in the correct place.
This!! In this case, I reverse engineered to find out the above information. Frustrating and adding to the confusion. I will explore other options next year.

livesoft
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by livesoft » Fri Apr 05, 2019 8:14 pm

Instead of reading TT questions and answering them, did you look at the IRS instructions for this and read them? :)
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by retire2022 » Fri Apr 05, 2019 8:26 pm

OP will you contribute $1,068 to Roth IRA or Traditional IRA? :D

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by livesoft » Fri Apr 05, 2019 8:36 pm

retire2022 wrote:
Fri Apr 05, 2019 8:26 pm
OP will you contribute $1,068 to Roth IRA or Traditional IRA? :D
I don't think spouse needs any income at all for that if the OP has enough income to cover them. The question could be: Does she want to have a solo 401(k)? (But it is too late to have one for 2018 anyways.)
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camillus
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by camillus » Fri Apr 05, 2019 9:04 pm

Doesn't your wife require significantly increased caloric intake to generate milk? Perhaps you should deduct a portion of your grocery bill.

Are there any special perks for considering this as farm income?

(I work in a NICU, thank you)

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by AlphaLess » Fri Apr 05, 2019 9:06 pm

Jmh04j wrote:
Fri Apr 05, 2019 5:00 am
kinetic2255 wrote:
Thu Apr 04, 2019 10:26 pm
Breast Milk is considered merchandise, and the company that is paying me $1.00/ounce for the product should not be issuing me a 1099-MISC for these payments. Establishing a business (self-employed) to produce or sell Breast Milk wouldn’t be a recognized business as the volume produced and duration is uncertain."[/i]
What is the name of the company? We probably have enough breast milk to retire in my garage fridge....
WHAT?
"You can get more with a kind word and a gun than with just a kind word." George Washington

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by unclescrooge » Fri Apr 05, 2019 9:14 pm

Jmh04j wrote:
Fri Apr 05, 2019 5:00 am
kinetic2255 wrote:
Thu Apr 04, 2019 10:26 pm
Breast Milk is considered merchandise, and the company that is paying me $1.00/ounce for the product should not be issuing me a 1099-MISC for these payments. Establishing a business (self-employed) to produce or sell Breast Milk wouldn’t be a recognized business as the volume produced and duration is uncertain."[/i]
What is the name of the company? We probably have enough breast milk to retire in my garage fridge....
:shock:
ROFL

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unclescrooge
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by unclescrooge » Fri Apr 05, 2019 9:20 pm

kinetic2255 wrote:
Fri Apr 05, 2019 8:10 pm
HueyLD wrote:
Fri Apr 05, 2019 2:20 pm
You need to go back to the 1099-MISC input screens and answer each and every question VERY SLOWLY!!

One of the questions says: “Does one of these uncommon situations apply?” If you answer the question correctly, it will ask you a few more questions and put the $1068 on line 21.

Yes, TT knows what it is doing, but the user must answer the questions correctly.
I carefully and slowly considered the question "Does one of the uncommon situations apply"
  • Owned a farm Nope
  • On a board of directors; this was wife's fee Nope
  • Related to wife's interest in gas or oil property Nope
  • Commission, bonus, prize, award, etc. from a payer who was not wife's employerNope(maybe?)
  • Wife's employer reported this extra money on a 1099-MISC but it should have been on a W-2 Nope, (maybe?)
  • Bonus, prize, award, trip, or extra benefit from wife's employerNope
  • Money from scholarship or fellowship Nope
  • Money from lawsuit settlement Nope
  • Wife was in research study and this was the payment Nope
  • Manufacturers incentive payment Nope
  • None of these apply Yup
Next question: Did it involve work that like wifes main job? = No
Next question: Check the year - 2018 Only
Next question: Did the Lactation involve an intent to earn money? Yes = Schedule C. No = line 21.

I walked this through at least a couple of the other 'maybe' bullets like "1099-MISC but should have been W-2" and "commission, bonus, prize etc". On each, the trigger is the answer to the 'intent to earn money' question. The intent was to make money. So, can you see why this is a bit confusing to me? I wouldn't intuitively missinform TT by answering no to get the line 21 result.
thx1138 wrote:
Fri Apr 05, 2019 3:18 pm
aristotelian wrote:
Fri Apr 05, 2019 3:00 pm
She produced $1000 of breast milk. Certainly not a one time event. She must have spent hours doing this, and her motive is profit. I am not an expert but I would do the Schedule C.
No. The point is she isn't constantly pumping out milk as a business over multiple years. It is clearly "sporadic" in that she had excess milk to sell on this occasion that is very unlikely to be repeated.
Correct and unlikely to be repeated. Unless, my wife agree's to stay child bearing until full retirement age $$$ :D
thx1138 wrote:
Fri Apr 05, 2019 3:18 pm
I'd definitely file under "other income". If the IRS decides they don't like it they'll send paperwork reflecting their recommended change of Sched C. and up the tax owed due to SE tax. In the unlikely event that occurred the OP could agree with the IRS and just write a check or dispute it.
With penalties I assume?
thx1138 wrote:
Fri Apr 05, 2019 3:18 pm
EDIT: I'll add that TurboTax in particular tends to default everything in that 1099 box into Sched C income unless as another poster noted you are very careful in filling out the questions. This is one reason I gave up on TT a long time ago - it was far more frustrating to work through its cack-handed efforts to "help" me fill out my taxes. If not every year at least every other year involved finding the wrong boxes filled out on the forms and then reverse engineering their questions to get things in the correct place.
This!! In this case, I reverse engineered to find out the above information. Frustrating and adding to the confusion. I will explore other options next year.
Your wife's intent was not to earn money. It was to feed your kid. She sold it for profit as a by product of having excess. But that probably wasn't the main motive.

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by celia » Fri Apr 05, 2019 9:30 pm

FYI, The collection company was required to issue her a 1099-MISC if they paid her $600 or more in a given year.
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by Dianne » Fri Apr 05, 2019 10:23 pm

unclescrooge wrote:
Fri Apr 05, 2019 9:20 pm
Your wife's intent was not to earn money. It was to feed your kid. She sold it for profit as a by product of having excess. But that probably wasn't the main motive.
Maybe it depends on when she developed the intent to earn. If she didn't think about selling until after the baby was eating solid food, and then she looked in the freezer and thought, "what am I going to do with all this?" then I could agree with the argument that she didn't produce and store the breast milk with intent to earn money. But if she bought the pump while pregnant and was thinking, "I'm going to buy the deluxe pump and try to produce excess milk to sell," that would change the analysis.

But of course, if this is Schedule C income, the pump would be at least partially deductible. As would other equipment and expenses related to producing the milk. OP, are you certain that a Schedule C calculated with all appropriate deductions wouldn't result in a lower tax bill than line 21? The breast milk business might even produce a loss that your wife could take against other earned income.
Last edited by Dianne on Fri Apr 05, 2019 10:26 pm, edited 1 time in total.

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by spectec » Fri Apr 05, 2019 10:23 pm

The "Batok" case has usually been the cite for proper treatment of this type of income. Yet, there is disagreement among tax preparers on when and how the circumstances in Batok should be applied. As far as I know, the issue has never been clarified by IRS. The only other guidance is a position IRS took with respect to "spiffs" in the automotive industry, in which they required reporting of the income but specifically said it was not subject to Self-Employment tax.

In any event, if you report it on Line 21 and NOT subject to Self-Employment tax, you will save roughly $150 and that will probably be the end of it. However, if IRS questions the treatment within about 18 months, you can either provide documentation citing the Batok case and "spiffs" guidance, or you can just decide to pay the tax (plus a small penalty and interest amounting to $20 or so).
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by Figuring_it_out » Fri Apr 05, 2019 11:10 pm

Do you have a cost basis to for generating the income. Milk didn't come for free. :) :moneybag

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by Spirit Rider » Fri Apr 05, 2019 11:19 pm

thx1138 wrote:
Fri Apr 05, 2019 3:18 pm
aristotelian wrote:
Fri Apr 05, 2019 3:00 pm
She produced $1000 of breast milk. Certainly not a one time event. She must have spent hours doing this, and her motive is profit. I am not an expert but I would do the Schedule C.
No. The point is she isn't constantly pumping out milk as a business over multiple years. It is clearly "sporadic" in that she had excess milk to sell on this occasion that is very unlikely to be repeated. The fact it took lots of hours and was over multiple sessions is irrelevant.
@aristotelian @thx1138 is 100% correct. Even if she had a profit motive for doing so or rather as it sounds, not to have the breast milk go to waste when it could be of substantial benefit to others. There is no way this could be considered a considerable, regular and continuous activity.

In the seminal SCOTUS decision on this issue Higgins v. Commissioner, the court stated; "The courts have developed two definitional requirements. One, in relation to profit motive, is said to require the taxpayer to enter into and carry on the activity with a good faith intention to make a profit or with the belief that a profit can be made from the activity. The second is in relation to the scope of the activities and is said to require considerable, regular, and continuous activity."

Edit: Corrected mis-attribution.
Last edited by Spirit Rider on Sat Apr 06, 2019 10:39 am, edited 1 time in total.

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GKSD
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by GKSD » Sat Apr 06, 2019 12:04 am

blackburnian wrote:
Fri Apr 05, 2019 3:26 pm
I had a similar situation with royalties from a book, after I had stopped being a writer and had a regular job. Turbotax wanted me to put it on Schedule C but somehow (I can't remember how anymore) I managed to enter it where it belonged, under "other income." I did this for several years and never had any problem from the IRS.
Umm, I have somewhat similar situation - I take photographs as a hobbyist but then sell these photographs through multiple online stock photography websites. This generates royalty income and I get 1099-Misc from multiple sources. I have always been reporting these on Schedule C.

If I submit these photographs for sale on stock photography sites, that is an intent to earn money. And photographs that I had taken in the past keep generating royalties year over year. I always thought Sch. C is the right place to report such income.

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by bottlecap » Sat Apr 06, 2019 12:18 am

Now you tell me that this is a thing - after my last kid is almost off breast milk...

We never really had any extra, though, the kids really didn't leave much to spare.

That's decent money, though.

JT

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by thx1138 » Sat Apr 06, 2019 7:26 am

Removed for easier thread reading

(Was a clarification of an above post that has now been edited)
Last edited by thx1138 on Sat Apr 06, 2019 1:24 pm, edited 1 time in total.

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by thx1138 » Sat Apr 06, 2019 7:32 am

kinetic2255 wrote:
Fri Apr 05, 2019 8:10 pm
thx1138 wrote:
Fri Apr 05, 2019 3:18 pm
I'd definitely file under "other income". If the IRS decides they don't like it they'll send paperwork reflecting their recommended change of Sched C. and up the tax owed due to SE tax. In the unlikely event that occurred the OP could agree with the IRS and just write a check or dispute it.
With penalties I assume?
Yes if you agreed with their changes you’d pay some very small interest penalty in addition to the SE tax they were claiming you owed. But as others have pointed out it’s clear this isn’t a SE situation.

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by aristotelian » Sat Apr 06, 2019 8:00 am

unclescrooge wrote:
Fri Apr 05, 2019 9:20 pm
kinetic2255 wrote:
Fri Apr 05, 2019 8:10 pm

Next question: Did the Lactation involve an intent to earn money? Yes = Schedule C. No = line 21.

I walked this through at least a couple of the other 'maybe' bullets like "1099-MISC but should have been W-2" and "commission, bonus, prize etc". On each, the trigger is the answer to the 'intent to earn money' question. The intent was to make money. So, can you see why this is a bit confusing to me? I wouldn't intuitively missinform TT by answering no to get the line 21 result.
Your wife's intent was not to earn money. It was to feed your kid. She sold it for profit as a by product of having excess. But that probably wasn't the main motive.
That appears to be the key question here. OP says her intent was to earn money. My impression is that this is not a case of simply selling leftover milk in the fridge. She is milking extra and selling to the milk company on a regular basis with the intent of making money. It seems more like plasma donation than selling stuff from the garage on Craigslist.

Looks like plasma donation could go either way: https://www.accountantforums.com/thread ... sma.40704/

That said, I would certainly defer to Spirit Rider on the question of whether it's regular and continuous.

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by BuckyBadger » Sat Apr 06, 2019 9:26 am

As a currently pumping mother I can confirm that the process of making and expressing milk is neither easy nor free.

I can also confirm that there are places that buy breast milk for a dollar an ounce.

However it is far more common to donate rather than sell excess milk. Most people donate to milk banks that provide it to NICUs or donate to other mothers who can't produce breast milk on their own often due to premature babies or repeated visits to the NICU that make establishing a milk supply nearly impossible.

I myself am a member of a group that has donated thousands of ounces of milk. I have pumped over five thousand ounces but have fed or donated all of it.

Perhaps your wife could consider a donation next time unless the thousand dollars or so she got is necessary income for the family. Often the mothers receiving donated milk wouldn't otherwise be able to pay for it so to them and their babies it is life changing. Especially for babies who don't tolerate formula.

You may then be able to deduct the value of the breast milk as a charitable contribution although I've never done that myself personally.

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by InMyDreams » Sat Apr 06, 2019 10:02 am

GKSD wrote:
Sat Apr 06, 2019 12:04 am
...I have always been reporting these on Schedule C.
To you and the OP - If you are reporting income on Sched C, you may be eligible to take health and long term care insurance costs off. Pub 17, pg 163 starts:
"Health Insurance Costs for Self-Employed Persons If you were self-employed and had a net profit for the year, you may be able to deduct, as an adjustment to income, amounts paid for medi-cal and qualified long-term care insurance on behalf of yourself, your spouse, your depend-ents, and your children who were under age 27 at the end of 2018. For this purpose, you were self-employed if you were a general partner (or a limited partner receiving guaranteed pay-ments) or you received wages from an S corpo-ration in which you were more than a 2% share-holder. The insurance plan must be established under your trade or business and the deduction can't be more than your earned income from that trade or business."

https://www.irs.gov/pub/irs-pdf/p17.pdf

Rules and conditions apply, read the pub.

This is new this year, and is often overlooked.

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kinetic2255
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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by kinetic2255 » Sat Apr 06, 2019 10:45 am

aristotelian wrote:
Sat Apr 06, 2019 8:00 am
unclescrooge wrote:
Fri Apr 05, 2019 9:20 pm
kinetic2255 wrote:
Fri Apr 05, 2019 8:10 pm

Next question: Did the Lactation involve an intent to earn money? Yes = Schedule C. No = line 21.

I walked this through at least a couple of the other 'maybe' bullets like "1099-MISC but should have been W-2" and "commission, bonus, prize etc". On each, the trigger is the answer to the 'intent to earn money' question. The intent was to make money. So, can you see why this is a bit confusing to me? I wouldn't intuitively missinform TT by answering no to get the line 21 result.
Your wife's intent was not to earn money. It was to feed your kid. She sold it for profit as a by product of having excess. But that probably wasn't the main motive.
That appears to be the key question here. OP says her intent was to earn money. My impression is that this is not a case of simply selling leftover milk in the fridge. She is milking extra and selling to the milk company on a regular basis with the intent of making money. It seems more like plasma donation than selling stuff from the garage on Craigslist.

Looks like plasma donation could go either way: https://www.accountantforums.com/thread ... sma.40704/

That said, I would certainly defer to Spirit Rider on the question of whether it's regular and continuous.
Unclescrooge is correct. We had excess and we didn't want to waste it. She works per diem and wasn't earning an income staying home so this was an effort to supplement lost income.
BuckyBadger wrote:
Sat Apr 06, 2019 9:26 am
As a currently pumping mother I can confirm that the process of making and expressing milk is neither easy nor free.

I can also confirm that there are places that buy breast milk for a dollar an ounce.

However it is far more common to donate rather than sell excess milk. Most people donate to milk banks that provide it to NICUs or donate to other mothers who can't produce breast milk on their own often due to premature babies or repeated visits to the NICU that make establishing a milk supply nearly impossible.

I myself am a member of a group that has donated thousands of ounces of milk. I have pumped over five thousand ounces but have fed or donated all of it.

Perhaps your wife could consider a donation next time unless the thousand dollars or so she got is necessary income for the family. Often the mothers receiving donated milk wouldn't otherwise be able to pay for it so to them and their babies it is life changing. Especially for babies who don't tolerate formula.

You may then be able to deduct the value of the breast milk as a charitable contribution although I've never done that myself personally.
Very nice of your group to do that. At the time it didn't even occur to us to donate. We are done with this stage of life (3 boys under 5 in the house) but good info for others.
livesoft wrote:
Fri Apr 05, 2019 8:14 pm
Instead of reading TT questions and answering them, did you look at the IRS instructions for this and read them? :)
I am getting well rounded by reading both :happy
Dianne wrote:
Fri Apr 05, 2019 10:23 pm
unclescrooge wrote:
Fri Apr 05, 2019 9:20 pm
Your wife's intent was not to earn money. It was to feed your kid. She sold it for profit as a by product of having excess. But that probably wasn't the main motive.
Maybe it depends on when she developed the intent to earn. If she didn't think about selling until after the baby was eating solid food, and then she looked in the freezer and thought, "what am I going to do with all this?" then I could agree with the argument that she didn't produce and store the breast milk with intent to earn money.
This is pretty much it in a nutshell.
Dianne wrote:
Fri Apr 05, 2019 10:23 pm
unclescrooge wrote:
Fri Apr 05, 2019 9:20 pm
Your wife's intent was not to earn money. It was to feed your kid. She sold it for profit as a by product of having excess. But that probably wasn't the main motive.
But of course, if this is Schedule C income, the pump would be at least partially deductible. As would other equipment and expenses related to producing the milk. OP, are you certain that a Schedule C calculated with all appropriate deductions wouldn't result in a lower tax bill than line 21? The breast milk business might even produce a loss that your wife could take against other earned income.
Figuring_it_out wrote:
Fri Apr 05, 2019 11:10 pm
Do you have a cost basis to for generating the income. Milk didn't come for free. :) :moneybag
camillus wrote:
Fri Apr 05, 2019 9:04 pm
Doesn't your wife require significantly increased caloric intake to generate milk? Perhaps you should deduct a portion of your grocery bill.
I suppose I could do this but I would be guessing/estimating and may have a tough time with back-up. For kicks, about $300 seems to be the break even point with line 21.
spectec wrote:
Fri Apr 05, 2019 10:23 pm
The "Batok" case has usually been the cite for proper treatment of this type of income. Yet, there is disagreement among tax preparers on when and how the circumstances in Batok should be applied. As far as I know, the issue has never been clarified by IRS. The only other guidance is a position IRS took with respect to "spiffs" in the automotive industry, in which they required reporting of the income but specifically said it was not subject to Self-Employment tax.

In any event, if you report it on Line 21 and NOT subject to Self-Employment tax, you will save roughly $150 and that will probably be the end of it. However, if IRS questions the treatment within about 18 months, you can either provide documentation citing the Batok case and "spiffs" guidance, or you can just decide to pay the tax (plus a small penalty and interest amounting to $20 or so).
Great info. Thanks!

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by Spirit Rider » Sat Apr 06, 2019 10:47 am

InMyDreams wrote:
Sat Apr 06, 2019 10:02 am
This is new this year, and is often overlooked.
Not even remotely new. The self-employed health insurance deduction was included in the Tax Reform Act Of 1986.

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Re: Selling Breast Milk - 1099-MISC SCH C or Line 21?

Post by Spirit Rider » Sat Apr 06, 2019 10:53 am

aristotelian wrote:
Sat Apr 06, 2019 8:00 am
That appears to be the key question here. OP says her intent was to earn money. My impression is that this is not a case of simply selling leftover milk in the fridge. She is milking extra and selling to the milk company on a regular basis with the intent of making money. It seems more like plasma donation than selling stuff from the garage on Craigslist.
The IRS just reaffirmed Higgins v. Commissioner in their Section 199A final regulations as the basis for determining if you are engaged in a trade or business activity. Intent is not enough. There must be considerable, regular, and continuous activity.

There is no way that this can be considered anything, but a one-off, chance and intermittent activity.

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