Etsy, 1099K, child's business

Forum|Forum|4 years ago
April 9, 2022
2 replies
0 views

I am totally lost on how to deal with the 1099K from Etsy. As a minor, my child had to list me as the "owner" of her Etsy shop (which I understand). Last year she sold almost $2K in items that she makes. We (she) received a 1099K for this, but it is listed under my name and SSN.

So I have seen suggestions to report this as a hobby, or as self-employment, or even as a business. She does all of the work, she pays for material from her sales etc. We just are the "listed" owner of the shop due to her age.

Of course at my tax bracket I'm getting slammed on the taxes, but I don't know if my child could file their own taxes when the 1099-K is linked to my name/SSN.

Thanks for any help with this!

JohnB5677

I understand the situation, but this is your business, and you will have to pay any associated taxes as far as the IRS is concerned. You can list the business as a hobby. Hobbies are not subject to self-employment tax. However, you can not take any deduction for the cost of materials or other expenses.

Please see Tips for taxpayers who make money from a hobby

If someone has a business, they operate the business to make a profit. In contrast, people engage in a hobby for sport or recreation, not to make a profit. Taxpayers should consider nine factors when determining whether their activity is a business or a hobby. They should base their determination on all the facts and circumstances of their activity.

If a taxpayer receives income for an activity that they don’t carry out to make a profit, the expenses they pay for the activity are miscellaneous itemized deductions and can no longer be deducted. The taxpayer must still report the income they receive on Schedule 1, Form 1040, line 21

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

jcnicnicAuthor

Thank you so much for the clarification. I wasn't trying to "avoid" reporting it, just wanted to put it in the right place.

wife-mom-math

A follow up question on this:

I'm in a similar situation: we own an Etsy shop, but it's actually my 15 yo's business, she's the one who created the products and answered customers' questions. However since she's a minor, all the legal/finance info is under my name.

Is there anyway for parents to generate W-2 so that the child has an earned income so she can open a custodial ROTH IRA?

Thank you.

AmeliesUncle

If it is your child's business, they report the business on their own tax return.

Their net earnings from the business (usually the business profit minus the 1/2 SE tax deduction) is "compensation" that qualifies for an IRA contribution.

If you have a Partnership (you said "we" own an Etsy shop) that you are also an owner of the business, then the business needs to file a separate tax return on Form 1065. Your child's share of the business profit follows the same rules as I mentioned in the previous paragraph.