How To Report Income From Personal Service Contract For My Mom For Taxes

personal services contract income is taxable — *The money you received from that personal services contract you lot signed has to be reported to the IRS.*

Personal services contracts are very pop in long-term intendance planning – especially when Medicaid benefits are sought. Just they may not be the best solution.

Long-term intendance in a nursing home (also called a rehabilitation center) is expensive. Many people who are receiving or will be receiving long-term care have little in savings and face impending impoverishment. Medicaid rules let certain planning measures that may preserve some of the applicant'south assets for his or her family.

Ane of these measures is known every bit a personal service or lifetime care contract. This legal contract specifies the bounty a family member will receive in return for providing lifetime personal intendance and oversight of professional intendance for the nursing home resident. The Medicaid rules and the family situation will dictate how much compensation can be paid.

In nigh states, the caretaker is paid in installments as the care is provided. But, in Florida, the flagman can receive the compensation equally a lump sum payment. The caretaker receives the compensation upwardly front, just is legally obligated to provide intendance for as long as the nursing dwelling resident is alive.

This lump sum payment is considered bounty past the IRS and is taxable income to the flagman when received.

I'm going to repeat that considering it's so important:

This lump sum payment is considered bounty past the IRS and is taxable income to the flagman when received.

The Internal Acquirement Lawmaking § 61 defines gross income every bit "…all income from whatever source derived, including (but not limited to) the following items:(1) Bounty for services, including fees, commissions, fringe benefits, and similar items…"

Some people think that simply because they don't receive a 1099 or Westward-ii for certain income, they don't have to report information technology on their taxation return. Incorrect! Just because the IRS may not be notified of the payment doesn't mean it doesn't take to be reported. All income – even illegal income – must exist reported or you're committing revenue enhancement fraud.

If you'll be receiving bounty due to a personal service contract, be sure to talk to your tax professional before signing the contract considering the tax consequences of receiving a lump sum payment may be more detrimental to you than it is beneficial to the potential Medicaid applicant. An Elder Law attorney may be able to provide your family with other alternatives.

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