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tax treatment of income earned from mom?

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.

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.

Do you see any problems with this interpretation?

Reply to
boostm3
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And that would clearly be line 21 miscellaneous income to you.

Whether or not the payor issues a 1099 is irrelevant to the question of what kind of income it is to the recipient.

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.

Reply to
Phil Marti

The part of that $8k that's for managing her investment portfolio and preparing her taxes is deductible, after a haircut. I don't think the rest is. (Real estate issues for investment real estate is, without haircut.)

Only some of it; see above.

Because it's self employment. Claiming to be 'semi retired' doesn't affect the characterization of income. You even admit that it's earned income.

You should be doing that on her behalf, as part of your duties as described above.

Yes. More important is whether the IRS will. I think they will, if they notice.

Seth

Reply to
Seth

Regarding, "an additional 8k .. handle her insurance needs, help with her bills" -- the part used to pay bills and insurance premiums, and so on is not income to you, nor is it deductible for her.

Just the money you receive for managing her money is income to you probably line 21 (Other Income) or Schedule C (Business Income), not sure which, though I would think Schedule C. However it is deductilbe for her on Schedule A subject to the 2% limit and phaseout and AMT, so might be of no use to her, in which case should consider giving you more than 12k but use up her lifetime gift exemption and file a gift tax return.

What is semi-retired?

Reply to
removeps-groups

boostm3 wrote: [...]

If you have qualifying children or are under age 65, and have relatively low investment income, don't forget to claim the Earned Income Credit. Perhaps you could also raise your professional service fees and cover some of your ordinary and necessary business expenses.

-Mark Bole

Reply to
Mark Bole

,

Why? It's not a payment rendered in the course of a trade or business, or to an attorney. (The MOTHER has no trade or business.)

Reply to
D. Stussy

You're probably right, unless her investments is considered that.

Seth

Reply to
Seth

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