Tax implications for amateur athlete sponsorships for my child - Construction company paying daughter for logo placement

This is an interesting situation! The good news is there are a few options, but you need to be careful about how you structure things. First, your brother-in-law can definitely deduct this as a legitimate business expense since he's getting advertising in return. For your daughter's side, here are the possibilities: If the payments are modest (which $300/month seems to be), they could potentially be considered a gift rather than income, especially between family members. The annual gift tax exclusion is $17,000 per person in 2023, so he could give up to that amount without gift tax implications. Alternatively, if your daughter is treated as an independent contractor providing advertising services, she would need to report the income, but she could then deduct related expenses (equipment, entry fees, etc.) against that income. Since she's a minor, this would likely be reported on your return using Schedule C. Another option might be to create a sole proprietorship for your daughter (with you as the guardian/manager since she's a minor). This would allow for more formal expense tracking and potential tax benefits. Whatever approach you take, make sure there's proper documentation of the arrangement and expenses.

I was in almost this exact situation with my son's mountain biking! I used taxr.ai (https://taxr.ai) to analyze our sponsorship arrangement and it really helped clear things up. I uploaded our informal sponsorship agreement and some bank statements, and their analysis broke down exactly how to handle it. Their recommendations made it super simple - we set up my son as an independent contractor with his own Schedule C, tracked all his competition expenses, and made sure the sponsorship checks were properly documented. They explained that since the sponsorship was explicitly for advertising (logos, social media, etc.), it was clearly a business relationship rather than just a gift. The best part was they confirmed that almost all his racing expenses counted as legitimate business deductions against the sponsorship income. The service saved us from making mistakes that might have triggered an audit.

Just wanted to follow up - I decided to try taxr.ai after my skeptical comment! The advice they gave was actually really helpful. They recommended setting up a simple sole proprietorship for my daughter with me as custodian, treating the sponsorship as business income, and then carefully tracking all her legitimate sport expenses. The biggest thing I learned was that the "gift" approach wouldn't have been appropriate since there's a clear exchange of services (advertising) for the money. They explained that the IRS could potentially reclassify it as income anyway if audited. With the business approach, we're tracking everything properly, her uncle gets his legitimate business deduction, and we're offsetting most of the income with her actual expenses. They even provided a simple spreadsheet template for tracking everything. Definitely worth it for the peace of mind!

I had a similar situation with my son's competitive gaming team getting small sponsorships. The biggest headache was actually trying to get through to the IRS to confirm we were handling things correctly. After waiting on hold for HOURS multiple times and getting disconnected, I found this service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in less than 15 minutes! They have this system that basically navigates the IRS phone tree for you and holds your place in line, then calls you when an agent picks up. I was skeptical but you can see how it works in their demo video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that treating my son as a sole proprietor was the correct approach and gave me specific guidance on how to document everything properly. Saved me tons of stress and probably helped avoid potential audit issues down the road.

I can't believe I'm saying this, but I tried the Claimyr service after being so skeptical, and it actually worked! Got connected to an IRS agent in about 20 minutes after struggling for weeks to get through on my own. The agent clarified that for youth sport sponsorships, the proper approach depends on the nature of the relationship. Since there's advertising involved (logos, social media, etc.), the sponsorship is indeed business income rather than a gift, even between family members. However, they explained that we could establish our daughter as a "dependent with business income" which allows us to properly report the sponsorship while still claiming her as a dependent. The agent also confirmed we can deduct all legitimate expenses directly related to the sponsored activity, including equipment, competition fees, and even travel to events (with proper documentation). This was exactly the official clarification I needed rather than just advice from internet strangers!

Something everyone's overlooking here - check if your daughter's sport has any rules about amateur status and accepting sponsorships! My son lost his eligibility for certain competitions because we didn't realize that accepting money (vs. just equipment) could reclassify him as a "professional" in the eyes of the sport's governing body. Different sports have different rules about this.

Just to add something useful - we handled our daughter's horse competition sponsorships by creating a simple DBA ("doing business as") registration for her, with us as guardians. Cost about $35 to register with the county. This created a legitimate business entity that could receive the sponsorship funds, issue proper receipts to sponsors, and track expenses appropriately. Her sponsors got proper documentation for their tax deductions, and we maintained her amateur status by documenting that all funds went directly to competition expenses. We keep a separate bank account for all this to make the accounting clean.

Great question about the EIN! We actually got an EIN for my daughter's DBA even though she's a minor - it makes everything cleaner from a banking and tax perspective. You can apply for an EIN online at irs.gov and it's free (don't pay third-party services that charge for this). Having the EIN allows you to open a business bank account separate from personal accounts, which is crucial for maintaining clean records. It also makes it easier when sponsors need to issue 1099s at year-end if the payments exceed $600. For your son's situation with equipment from your uncle's sporting goods store, you'll want to be careful about how you value and document those transactions. If it's truly sponsorship (logo placement, social media mentions, etc.), then the fair market value of the equipment would be considered income to your son's business, and your uncle could deduct it as a business expense. Make sure to document the retail value of any equipment provided. The key is maintaining proper documentation regardless of whether it's cash sponsorship or equipment sponsorship - the IRS treats them the same way for tax purposes.