My wife and I are paid out of a trust to care for my Alzheimer's Father. Do we have to claim that money as income?

I just set up a trust account for my mother. I was advised by the elder care attorney that set up the trust that money can be withdrawn and I do NOT have to claim it as income. There are no tax consequences. This is from the elder care attorney.

If you got a 1099 for tax year 2014, the amount paid to you both needed to be included in your joint income for 2014 taxes.

Actually I'd be concerned about whether or not you (& your wife) actually should be getting a 1099 - like are you both really independent contractors?? and as such can get a 1099- Miscellaneous Income; OR if you both are actually domestic employees and the payor (the trust) needs to be approaching how you both are getting paid as employer / employee rather than contract labor. You need to see a CPA or other tax specialist to review this and then do whatever is needed to set this up so that you do not have an issue & penalty with IRS for incorrect status. Most domestics now are considered employees and the employer has to do FICA, withholding, etc on them.

I would think that setting up an INC or LLC to get around the employee situation may be viewed skeptically unless you have a true legit senior care business registered with the state or city and available for other clients.

If they receive a 1099, they have to file a 1040, because you only get a 1099 for $600 or more income, which is same as the 1040 income requirement to file. IRS website has oodles of info, and TurboTax can walk you thru all sorts of situations too.

First, are you even required to file a 1040? I.e., after reducing your income by deductions and exemptions, do you have income at a level which is taxable?

Second, there is no reason to create an LLC, none whatsoever. It would just complicate the situation since LLC taxes are differently assessed than individual taxes. LLCs also address liability issues, so unless you're concerned about that, stay away from incorporating or creating a business.

Third, the trust accountant will include the amount paid to you when preparing the trust Federal 1041, so the IRS will be aware that care payments have been made.

Fourth, depending on the amount you received for caregiving, it may require estimated payments.

But as suggested, consulting with a tax consultant is advisable.

You do not need to set up an LLC. The IRS form 1099 should already have your taxpayer ID number which is your Social Security number. The IRS has already been provided a copy of the 1099, too, so you must include it with your tax return, too, in exact same amount, or it will be a problem on an audit.

You enter that as miscellaneous income and see a tax consultant.

This would be a question for a CPA. If claimed as income all taxes will need to be deducted I would think. Who handles the trust? If a lawyer askthem this question.