In Home Care Provider

[GTS1101]

I have a client who will be receiving 23,000 in Dec 08 for back pay for taking care of her sister in her home for the period Aug 07 through Dec 08. After that she will receive approx 2,400 monthly from her sister for taking care of her in her home. My client's sister has dementia & she sold her house in Arizona to move in with my client. She cannot live on her own and needs help to function daily. The court has approved my client getting approx 2,400 monthly for in home care services for her sister. They figured out how much it would cost to put her in a care facility and instead of doing that the sister decided to pay my client what they would have paid the care facility.

1. All the income would be reported in 2008 because she is on the cash method. But what if she had expenses to take care of her sister in Aug 07 to Dec 07. Would she have to amend 07 and claim in 07 or just claim it all in 2008 since all the income was received as back pay all in 2008.

2. I would assume she could write off the depreciation of a room in her house that she is using for her sister as long as it is used exclusively for her sister.

3. I would also write off groceries, clothing, transportation, and medical supplies for her sister. Any other expenses unique to an in home care provider she could write off that I am not thinking about. I would assume anything she has to spend to take care of her sister would be a writeoff. And what about also claiming her sister as her dependent. Her sister gets some money from social security but not enough to provide her own support.

Thanks!
GTS1101

[erchess]

My Thoughts

The caregiver will need to file a Sch C unless she has formed another entity for the purpose of caring for the sister with dementia.

The caregiver will report all items of income when received.

If the caregiver had care expenses in 07 they should have been reported at that time on a no income Sch C for 2007. If this was not done, then amend.

The 2008 Sch C will report all items of income and expense concerned with the care of the sister. Depreciation of a room seems ok. The other expenses you mentioned seem ok. The important thing is to keep good records. For example, there should be records of all the food the sister eats, all the diapers she goes through, and so on. The caregiving sister cannot deduct the value of her time but if she ends up paying others to give care or provide services, her payments will be deductible. Care will need to be taken as to whether these individuals are contractors or employees and the relevant laws will have to be followed.

[travis bickle]

I generally agree with erchess' post above,

3. I would also write off groceries, clothing, transportation, and medical supplies for her sister. . . .. And what about also claiming her sister as her dependent. Her sister gets some money from social security but not enough to provide her own support.

Thanks!
GTS1101

but I am not sure you can do both here. After all, aren't those "expenses" subsumed in being a dependent?

I know I would really appreciate some serious insight on this point.

P.S. I believe the costs for a specialized medical diet [something "prescribed" for a medical condition, not Jenny Craig] is a legitimate expense, but I am not sure about "groceries" in general if she also claims her as a dependent

[BOB W]

I can't see a dependency issue here, too much "payment for services" in this situation. The payments are for self support by the sister to the sister.

[Kram BergGold]

dependency

The way I look at it, the money the caregiver spends on her sister and deducts on Schedule C are business expenses and can't be viewed as items of support. So the caregiver is probably not eligible for an exemption.

[taxmom34]

looks to me like the sister is contributing to her own support the $2400 a month, that comes to over $28,000 she provides for her own support, caregiver needs to prove more than half. i wouldnt give her dependency

[veritas]

Looks to me

like a Household Employee. This means a W-2. The sister will need to pay Fica, Futa, Suta on your client.

Nothing I saw indicated your client is in business.

[les grans]

1.) $2,400 a month is only a small fraction of what would be paid to an eldercare facility for room and board and care for the sister. How come the court allowed only that much? What did the court say this was to cover? Did the court make it clear what was covered?
2.) Isn't some of the $2,400 a month - I would think it would have to be, how about you? - for rent? The sister can't live in your client's house for free, can she? I'm thinking about SE/Social Security taxes on the monthly payment, and how to get it down a bit.
3.) Is it totally clear that the $2,400 a month payment is just for services? Seems to me the sister should be paying for room and board - which might be considered a reimbursement of your client's household expenditures - and somehow get under the tax radar. But don't tell 'em I said so.

[JG EA]

Are you sure these are not difficulty-of-care payments?

[les grans]

I thought difficulty-of-care payments were made by the state or local government to foster care providers. At least that's what irs.gov says.

[Burke]

like a Household Employee. This means a W-2. The sister will need to pay Fica, Futa, Suta on your client.Nothing I saw indicated your client is in business.

Ill sister is not employing caretaker in her own home. She is relocating to other "facility" which provides room and board, +++. I don't see a Household Employee situation here. Other question here is: why is a court involved? Did one sister become ill sister's guardian? Agree with everyone else, under these circumstance, no dependent exemption.

[BOB W]

I would have a tuff time reporting this on a W-2 from the ill sister. Even "Day Care" allows food and other expenses as a direct expenses as an above the line offset against income.

Does "Day Care" have to be children only?

[veritas]

"In her home"

I read that to mean in the sister's home. But it could be in the client's home too.

[erchess]

Ok

Veritas and anyone else who thought care was being provided in home of ill sister please re read original post. There is no ambiguity that I see. Client is doing this in her home. If Original Poster says I am wrong so be it.

I forgot to address dependency in my first post in this thread but it seems clear that there is no dependency.

I don't see the household employee situation either, if for no other reason than employment requires a contract and ill sister is incompetent. Contract is between healthy sister and court which is not part of the household. Besides it would be ridiculously unfair to tax the helpful sister on money she spends on her sister. If she makes a profit then tax her on it.

That brings me to the thought that the caregiving sister is not out to make profit and therefore the hobby loss rules may apply. I don't like that idea but then there is a lot about our tax laws that I don't like.

[JG EA]

I thought difficulty-of-care payments were made by the state or local government to foster care providers. At least that's what irs.gov says.

Yes just throwing that out for consideration, I was wrong apparently. I thought from the 1st post that maybe the money was going through Medicaid or some state agency because of the court thing. Perhaps her SS being used.

I have clients that take care of family members but they do receive payments through the state. These are not taxable. The state in the past has sent out 1099-Misc but upon contacting them they were non-taxable, but they say they send them out and then we are supposed to call to find out if it is taxable or not. I was interested to note that in the instructions for 1099's it said not to send them out at all.