Annual competition award is about $10,000. Is this considered income and should taxes be withheld/filed?
Probably yes. What kind of competition is it?
Music related, multiple instruments and composition.
And it’s a cash prize, as opposed to a scholarship?
Yes, cash prizes ranging from $500-2000.
I haven’t read it in years, but as I recall, the U.S. revenue code says income derived from “all sources” is taxable. The question is, ‘is it income?’
“All sources” raises another question in my mind. If travel (air plus hotel) to accept the awards is reimbursed (kid plus one parent) should that also be included in the “income”? That will put the total amount close to $20k/year.
Also, if the winner must play in a paid concert (i.e., for which tickets are sold) to be eligible for the cash prizes does that make this even more like regular income?
Sure sounds like taxable income to me. Schedule C self-employment income, with related expenses deductible.
It only matters if they 1099 your child. Otherwise, there is no record of it as far as the IRS is concerned, and I doubt anyone will chase your child down for an audit b/c he/she probably doesn’t even file a return now anyway.
No 1099s have ever been issued. We didn’t worry about it much in the earlier years when total cash prizes would be $1000-2000 only, but it’s steadily increasing and crossing the 5 figure mark, hence we are now worried. If expenses are deductible, will music lessons, recording costs, and conservatory tuition count as legitimate deductions? Then of course the net income is negative, and heavily so. 
Thanks to everyone for the guidance. I will look into filing this Schedule C.
I don’t think it would be a Schedule C - music competitions are not her “business”. It would probably be reported as Other Income on line 21 of the 1040. Expenses would be deductible, up to the amount of winnings, but no losses are allowed. Without actually opening up my books and researching, I think the expenses are taken on Schedule A - Other Expenses Related to Taxable Income - Subject to 2% of AGI.
Haven’t done any tax returns since April, so a tax expert might have a different take on this. However, I got a lot of gambling income this year from my clients and this is how I remember dealing with the tax implications.
Whether you get a 1099 or not, you are supposed to report the income.
It’s a he, not a she, though I guess these days all teenagers are into fluid gender identities. Thank you, Tumblr.
Yes yomama, you are “supposed” to report the income. However, do you claim your $1 and $2 lottery winnings? Without a clean paper trail, and without the subject child actually filing a return each year where inconsistencies could lead to audit, there is a very low chance of any audit risk on this.
My S won a cash prize at Young Arts a couple years ago and it was reported by the Young Arts org to IRS and he received a 1099. He had to pay taxes on it.
Watch out for the “kiddie tax” on the “other income”. That can be a real bear. Seems unfair to tax the kid at the parents’ rate, but there you go. We had to deal with this for summer stipend income that our daughter earned while in college. Reported on a 1099-Misc.
I won a $25 award for a paper I wrote in college. I received a 1099 for it, so I would assume it would be taxable (provided you have enough taxable income to have a tax liability)
Wait, do these go into the parents’ tax returns? The kid doesn’t file on his own?
“Worldwide income” is the term used by the IRS in defining what is reportable. @Cameron121’s advice to be a tax cheat because you “won’t get caught” is a sound argument if that complies with your ethics. The United States has a “voluntary” tax system. Totally your decision to make.
If it is under the filing requirement for a dependent ($6200) no tax return is required regardless. Over the $6200 threshold(usually increases $100 each tax year) then it would be reported on line 21 other income. No expenses are allowed. To use a schedule C and to claim expenses against the income your S would need to be engaged in a business. Your S is not actually being paid for a product/service correct? He is entering competitions?
The information pertaining to gambling wins is also not applicable.
What I have gathered from here is that it is complicated and I need a tax consultant.
See this for a brief discussion of the prize money tax. You pose an interesting question on whether the airfare is also a taxable amount.
Congrats on the prizes, sorry about the tax headache.