Asked in Contracts and Tax Law for New Jersey

Q: How to source a contract termination payout signed in state 1 but terminated after biz relocated to state 2?

I run a single-person LLC consulting business. My business had a substantial contract recently terminated. I signed the contract in 2020 while working in NJ, and it had a "soft lock" where the customer could break the contract in exchange for material penalty payment.

I moved to PR at the end of 2020 and was notified the customer wanted to terminate/pay the fee in mid 2021. It effectively put me out of business.

Do I source that penalty payment to NJ, since I signed the deal there? Do I source it to PR since that's where I moved to/was performing the services up until the termination?

Appreciate any insight!

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1 Lawyer Answer
Morris Leo Greb
Morris Leo Greb
PREMIUM
Answered
  • Rockaway, NJ
  • Licensed in New Jersey

A: No matter where the payment is received, it needs to be reported on your Federal Income Tax return. The implications for State or Commonwealth tax reporting is best answered by an accountant.

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