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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121429  
Subject: Re: Uncharted waters Date: 6/13/2012 3:09 PM
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She has so far gotten a check for about $300 (not much, I know, but I am wondering what happens if she does this a few times a month--we dont know how often she will get called)

That's taxable income. If the total gets over $600 in a calendar year, she'll likely get a 1099. But the 1099 is not necessary to make it taxable income.

so I am not sure yet whether the client would pay my DD directly (which could mean--if we are lucky and successful--dozens of 'employers) or if they pay the agency which would in turn pay us.

Sorry - the client will pay your daughter directly. And if things go well, she'll end up with many W-2s. Probably no 1099s, as models and actors are generally considered employees rather than independent contractors. The fun part is that the money will likely go through your agent, who will take his cut before sending you the balance. Your DD gets to report the whole amount - before the agent's fee - as taxable income. The agent's fee is a miscellaneous itemized deduction, subject to the 2% of AGI floor.

1) if the contractor pays DW but doesnt send us a W2 or 1099 and writes off the expense, do we get taxed on it?

Yes.

How do we document it if we need to declare?

You don't really need to document your income. The IRS will take your word for it as long as they have no reason to suspect you are hiding income.

If he writes off the expense, is the IRS notified even if he doesnt send her a 1099, etc?

No.

2) how does DD's earnings factor in when we file taxes? DW and I file 'married, filing jointly.' Do we need to include DD earnings when we file (we would be claiming her as dependent)?

DD will file her own tax return. As a dependent, she gets a smaller standard deduction and no personal exemption.

Part 'B' of this question is a repeat of question 1, but as it relates to DD. Particularly if we get multiple small checks (< $1,000 each) from different companies.

The threshold for an employer needing to file a W-2 is effectively zero (it might be something like $10). And as I noted, models are generally employees, so expect W-2s for her work AND all of the related tax withholdings (Social Security, Medicare, Federal income tax, and any state payroll tax deductions).

From a practical standpoint, I'd keep your own records of these payments. No so much for tax reporting, but to be sure you actually get paid for all of the work. The creative community is notorious for poor recordkeeping. You'll want to keep your own records and not necessarily trust theirs. You'll also need to know that to claim your fees your DD pays to her agent as a tax deduction.

The good news for DD is that this is all earned income. So she can make IRA contributions! Generally, a Roth IRA would be the choice, as she probably won't need the deduction for traditional IRA contributions. She's got the same limit as anyone else - $5,000 or the amount of earned income, whichever is smaller.

--Peter
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