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Posted by Phil Marti on March 6, 2008, 1:14 pm
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"boostm3" wrote:
> My father who is deceased named me as the trustee over his bypass
> trust when he passed away. As such, I earn a small income from my
> trustee duties which I take out of the trust earnings.
And that would clearly be line 21 miscellaneous income to you.
> But I earn a larger income from my mother who is 85 yrs old and who
> owns a sizeable financial portfolio which she is totally incapable of
> managing.
>
> I already receive the $12k max allowable gift each year. But she
> pays me an additional $8k to manage her investment portfolio, prepare
> her taxes, handle her insurance needs, help with her bills, real
> estate issues, and generally all financially related management duties
> she requires.
>
> Im planning on deducting this $8k from her income when I prepare her
> tax return, and Im planning on declaring it as earned income on mine.
> But, since shes my one and only client, and since I claim my
> occupation to be 'semi retired' which is what I am with this as my
> only earned income, I dont see why Id have to pay the ~15% Self
> Employment tax on it. She issues no 1099 forms, so its treated as
> misc income, which I will declare.
Whether or not the payor issues a 1099 is irrelevant to the question of what
kind of income it is to the recipient.
> Do you see any problems with this interpretation?
Yes, potentially. I could make a case that you're her household employee
and she should be paying employment taxes and giving you a W-2. I could
also make a case that you're conducting a business and should report your
income and expenses on Schedule C, paying self-employment tax in the
process. It boils down to facts and circumstances, and I can see reasonable
arguments for all three treatments.
If you haven't done so already, check to make sure that your activities on
behalf of your mother don't make you subject to some sort of securities
regulations or state/local licensing requirements. The results of that
investigation would be more information to add to the mix.
--
Phil Marti
Clarksburg, MD
--
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