Tax Exemption Legislation for 4-H and FFA Livestock Prize Money Moving Forward

Tax Exemption Legislation for 4-H and FFA Livestock Prize Money Moving Forward in OKC.
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Legislation declaring FFA and 4-H livestock awards to be tax-free cleared a House subcommittee on this week. House Bill 3081, by state Rep. Joe Dorman, provides that "any payment received by a person as an award for participation in a competitive livestock show event" will not be considered taxable income under Oklahoma law. Under the legislation, those payments will instead be treated as scholarship awards.

"Students don't make money on the animals they show," said Dorman, D-Rush Springs. "This is truly an educational opportunity given to these kids and it's ridiculous to require some 16- year-old 4-Her or FFA student to file taxes on a prize." The checks received by students involved in competitive livestock shows can range from a few hundred dollars at local events to tens of thousands at national events.

Carolyn Doyle, FFA Sentinel for the Elgin FFA, told state lawmakers the bill would allow students to make their dollars stretch further. "Most of the kids in our FFA chapter pay for their animals and feed, and any money we make at a show is usually the only income generated to pay for our projects," Doyle said. "If we have to pay income tax on those awards, we won't be able to do as much. FFA students are not getting rich off our projects and we want to be able to do more with our limited resources."

By declaring the prize money will be treated as a scholarship and therefore tax exempt under state law, legislators will indirectly exempt the prizes from federal taxation as well because of an existing federal tax exemption for scholarships and awards.
"The federal tax code clearly exempts scholarships and awards," Dorman said. "House Bill 3081 will dictate that these livestock show prizes will be classified as Scholarships and Awards and, therefore, nontaxable at both the state and federal level. That doubles the benefit for Oklahoma's FFA and 4-H students."

that was really cool. but, i don't have to worry about that problem

I wish they'd do it on a federal level.  However, we've never had many problems making too much money on show cattle.

I think the tax exempt angle is fine.....except when a hired jock gets the majority of the proceeds.....then it should be taxed at the 80% bracket.....hahahahahahaha

I like what NWSS has proposed for the Grand's in the market sale:  30% to the kid right away, 70% gets put in an educational trust fund, anything over 100K goes into the scholarship fund.

Texas has had that kind of system for a while at Houston.  For example, breed champions get the kid $15K.  The rest (which is usually a lot) goes to Houston's general scholarship fund which is great.  Except the kid isn't guaranteed a scholarship in any way.  I'd be ok with it if a kid that "made a donation" was guaranteed a scholarship when their turn came around.  Houston gives out lots of money which is wonderful, but the majority isn't going to kids that showed animals.

I'd also like it better if they'd take some of that extra money and divide it up amongst every calf in the sale.  It would be wonderful if every kid's calf would bring around $5K which they have enough money to do. 

I'm fine with capping some of these absurd prices and keeping the money for the kids instead of the adults, but I'd like to see more kids that put in the work get the money.

watched an old smallville episode last night about clark not being able to save lana's life.  he asked jor-el to help him, but jor-el said it would cost him the life of someone he loved and was required to "balance" things.  turns out, it was his dad.

tax revenue, or income, that's it.  when you start giving exemptions, an adjustment will arise elsewhere, usually at an artificial level.  every exemption makes the system more arcane, and thus harder to undo.  we need to be focusing on undoing it, lowering taxes so people can do a more efficient job at redistributing wealth than the government does.  government can not resist playing favorites, thus pitting people against each other to remain in power.  same old tricks.  subsidies and tax breaks are rain.  allowing the kids to be taxed teaches them about their government.  insulating them from this only encourages expectation to reinforce an everexpanding system of fraud.  the sooner they realize the benefit of paying taxes for relevant and constitutionally guided government, the better.  no use teaching them they need a handout.  every time there is a tax break or subsidy, a cascade of except when's occurs.  it makes the tax code grow. private solutions for redistribution are ok, like the NWSS solution.  the government is not needed for this.

i might add, that the number of kids that would exceed the minimum to file a return does not seem threatened with proceeds from showing steers.  this seems like an exremely narrow targeted bill with little real benefit.  i think the number is around $8700 dollars.  if you are  dependent on your parents tax return, this number is lower, 5350.

how many kids are going to make 5350 dollars selling a steer? 

why not just call a scholarship a scholarship and not even waste time writing the law?

Bravo! Knabe! Bravo! (clapping)

That would be great, lots of money goes into raising and showing cattle.

I guess I have been on both sides of this issues, so I maybe see things a little differently.  When we 1st started out we gave our niece and nephew the option to show, we paid all expenses and any prize money they earned they kept, it was placed in an account that they got when they graduated from high school.  They both did basically the same amount of work, both showed some really nice animals, but my nephew ended up winning the Res. Steer at state fair and received 8500.00 in prize money.  We were shocked in Jan. to receive a statement and the taxes on his winnings were right at 1000.00 dollars.
My niece on the other hand put just as much into the project but never won the big prize, she did however work summers at the pool and the money she made was put into her account to pay for college, that money was also taxed.
I guess in my opinion if it is a true "scholarship" and can only be used to pay for eductation I don't have a problem with the no tax, if it is income that can be spent on anything you wish, why would my nephew get his money no tax, but my niece have to pay taxes for her work income, they both spent the money on college.

To answer Chambero, I think there needs to be some reward for being at the top, however I think the money that is put into the general scholarship fund needs to be awarded to kids that exhibited livestock at that particular show

Jill said:

why would my nephew get his money no tax, but my niece have to pay taxes for her work income, they both spent the money on college.

Click to expand...

8500-5350=amount to tax=3150.  (5350 is roughly the amount over which to tax assuming the child is a dependent)

3150x0.32(tax rate)=1000

organizations could simply keep prizes under this amount to avoid any tax, or raise the price to pay for the 1000 in tax, but it would be pretty confusing to explain this to the kids.

gameshows are the worst for unexpected taxes.  they tell you beforehand, but that doesn't stop people from ignoring the advice.  my brother's wife made this mistake big time with price overinflated junk she won on a game show.  the stuff fell apart and was basically junk and they replaced it later.  better off buying quality up front.  it usually lasts longer.  or go the other route and buy disposable stuff at cut rate seldom use prices, like stuff at discount stores.

it's pretty difficult sometimes to teach kids what a lifetime purchase is.

We ran into problems with this a few years back.  The first year my son made the premium sale at Tulsa, H&R Block filed his taxes and we paid what they said he owed.  The next time he made the sale, he got a little over twice as much as the first time, but this time when they filed his taxes, he paid less than the first time.  They are H&R Block, so I trusted them and wrote the checks.  About a year after we filed the second time, we got a notice that he still owed twice as much as we'd already paid, so off to h&r I went.  They gave me a phone number and wished me luck...  The first gal I talked to was clueless.  Try to explain what a "premium" auction is to a city slicker!  After a few attempts at clearing things up, I finally got to talk to a young lady that knew exactly what I was talking about.. no explanation needed.  According to her, my son shouldn't have had to pay anything and she said we could file a correction to get the money we'd already paid back.  I thanked her and we never had any more problems.  I never tried to get the money we'd already paid back.. figured I'd already talked to the one irs employee that understood what I was talking about, and I didn't need ask for trouble.  Glad to hear they might be trying to clarify some guide lines.
I'd like to hear more discussion on this issue.  I realize the premiums get huge at some of the majors, but I think the kid that wins it ought to keep it... all of it.  Am I crazy?  It's always been my understanding that they changed this to try to deter some of the cheating.(I could  be wrong about that)  Has it helped?  Our premium auctions in OK aren't the pay day they are in TX and some of the bigger shows, so it's not something anyone has tried to take away from the kids yet.  I'd also have to agree that the kid that won should at least be guaranteed a full scholarship!

tuition at Stanford is over $47,000 next year.  for me, a steer show should not be a "lottery".  It should be somewhat about keeping books to participate in capitalism for those that don't win, rather than focusing just on the winner.  Winners deserve something, but not escape from the principles of capitalism.