Taxes on a 4-H/FFA project animal?

Ernie Klein · Joined: 25 Aug 2007 Posts: 176

When a 4-H or FAA youth raises a show animal for a livestock project and
eventually sells the animal at a Fair's livestock auction, what are the
tax consequences consequences for the youth?

Keeping in mind that the purchase price and sales prices of show animals
have little or no relation to the going market price of that type of
animal. For example: the youth might purchase a show quality feeder calf
weighting about 300-500 lbs. for $1000-3000 - many times the going
on-the-hoof price for feedlot quality calfs. They will put $600-1000 of
feed and a lot of work into the animal. At auction the (now
1200-1300lb.) steer might sell for $3-$10/lb. (or higher).

The premium price paid by the auction bidders is to recognize that the
youth has put a lot of time and work into the project and is selling a
high quality show amimal.

How (what forms) should the youth (or his/her parents) account for the
profit (or loss) from the livestock project?

Does this in any way fall under the so called "kiddie tax"?

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-Ernie-

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Archived from group: misc>taxes>moderated

Harlan Lunsford · Joined: 25 Aug 2007 Posts: 790

Ernie Klein wrote:
> When a 4-H or FAA youth raises a show animal for a livestock project and
> eventually sells the animal at a Fair's livestock auction, what are the
> tax consequences consequences for the youth?
>
> Keeping in mind that the purchase price and sales prices of show animals
> have little or no relation to the going market price of that type of
> animal. For example: the youth might purchase a show quality feeder calf
> weighting about 300-500 lbs. for $1000-3000 - many times the going
> on-the-hoof price for feedlot quality calfs. They will put $600-1000 of
> feed and a lot of work into the animal. At auction the (now
> 1200-1300lb.) steer might sell for $3-$10/lb. (or higher).
>
> The premium price paid by the auction bidders is to recognize that the
> youth has put a lot of time and work into the project and is selling a
> high quality show amimal.
>
> How (what forms) should the youth (or his/her parents) account for the
> profit (or loss) from the livestock project?
>
> Does this in any way fall under the so called "kiddie tax"?

So the animal might sell for 1200 x 6$ per pound, about 7200$! and it
cost say $4000. basis would include cost of feed in the interim of
course. Hmmmm... not a trade or business.

If not trade or business, one animal wouldn't be "inventory". So then,
might it be a capital asset?

Good question!

ChEAr$,
Harlan

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Ernie Klein · Joined: 25 Aug 2007 Posts: 176

In article ,
Harlan Lunsford wrote:

> Ernie Klein wrote:
> > When a 4-H or FAA youth raises a show animal for a livestock project and
> > eventually sells the animal at a Fair's livestock auction, what are the
> > tax consequences consequences for the youth?

> So the animal might sell for 1200 x 6$ per pound, about 7200$! and it
> cost say $4000. basis would include cost of feed in the interim of
> course. Hmmmm... not a trade or business.
>
> If not trade or business, one animal wouldn't be "inventory". So then,
> might it be a capital asset?

I think I may have found the answer. Pub 225 "Farmer's Tax Guide", in
chapter 12, under "Self Employment Tax" of all places, it says that "4-H
or FFA project animals..." may be subject to income tax and should be
reported on line 21 of Form 1040 with a attached statement showing the
gross income and expense and that the net income should not be subject
to SE tax.

I assume from that, that the youth would have to file their own 1040 at
their own tax rate and not on the parents 1040 or at the parents tax
rate. Does that sound right?

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-Ernie-

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dpb · Joined: 25 Aug 2007 Posts: 47

Harlan Lunsford wrote:
....

>> How (what forms) should the youth (or his/her parents) account for the
>> profit (or loss) from the livestock project?
....

I gather the parents in this case aren't filing Form F?

As a kid, that's what we did -- a 4H project calf was no different in
cost accounting than any other--there's no deduction for labor, only for
actual production costs.

If I think of it when I see him, I'll ask local guy what he would
suggest for the "townie" 4H-er as this is big "cow-country" (but I only
know how to deal w/ "real" farm income/costs for sure).

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Harlan Lunsford · Joined: 25 Aug 2007 Posts: 790

Ernie Klein wrote:
> In article ,
> Harlan Lunsford wrote:
>
>> Ernie Klein wrote:
>>> When a 4-H or FAA youth raises a show animal for a livestock project and
>>> eventually sells the animal at a Fair's livestock auction, what are the
>>> tax consequences consequences for the youth?
>
>> So the animal might sell for 1200 x 6$ per pound, about 7200$! and it
>> cost say $4000. basis would include cost of feed in the interim of
>> course. Hmmmm... not a trade or business.
>>
>> If not trade or business, one animal wouldn't be "inventory". So then,
>> might it be a capital asset?
>
> I think I may have found the answer. Pub 225 "Farmer's Tax Guide", in
> chapter 12, under "Self Employment Tax" of all places, it says that "4-H
> or FFA project animals..." may be subject to income tax and should be
> reported on line 21 of Form 1040 with a attached statement showing the
> gross income and expense and that the net income should not be subject
> to SE tax.
>
> I assume from that, that the youth would have to file their own 1040 at
> their own tax rate and not on the parents 1040 or at the parents tax
> rate. Does that sound right?
>
Verrrryyy INteresting! (whatwashisname onLaugh IN?)

Normally, gross hobby income goes on line 21, with associated xpenses
going onto schedule a. From what you've quoted above though, it seems
that one can only report gross profit, i.e. sale price less cost and feed.
Something like this though would certainly have to be filed "the old
fashioned way", via paper return.

ChEAr$,
Harlan Lunsford, EA n LA

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