Schedule C

[Pacun]

A translator has an office that he rents from landlord. IT guy wants to rent a desk and assist clients 4 hours a week on premises. Translator will charge $200 per month for the rent of office space and desk. Translator files Schedule C and where will he report the $200 monthly he will get from IT guru? Sch E? Will translator get away with not paying SE taxes on this income? Keep in mind that translator will deduct full rent against his schedule C.

[PapaJoe]

Pacun, I'm shooting from the hip here, without any research to back me up. I'd say the $200 rental income goes on Sch E just like any other rental income. However, an allocable portion of the translator's rent expense should go on Sch E as an expense. This will reduce his Sch C expenses and, to some extent, increase his SE income. I'll leave it up to you to determine how much rent expense to move to Sch E.

[Maribeth]

And I would conclude just the opposite -- that the translator has just entered into an office-sharing arrangement with the IT guy and the IT guy's rent reimbursement will reduce the amount of rent that the translator will deduct on his Schedule C. No Schedule E entries, just a reduction of Schedule C expense.

Maribeth

[jainen]

>>the translator has just entered into an office-sharing arrangement with the IT guy<<

I have still a different opinion. The space rental is not a separate business activity. It generates income from business assets but is incidental to the main business, so it is "other income" on line 6 of Schedule C. Do not take any of the expenses away from Schedule C.

[TAXBILLY]

Agree with jainen.

taxbilly

[Evan S. Golar]

I agree with Maribeth.

The subrental is part of the self-employment activity and in effect reduces the monthly rent the translator pays the landlord.

I had an audit many years ago of a Schedule C client who owned a building (a residence that was converted to a physician's office). Top floor was residential rental.

I took all the building expenses on the Schedule C - but separately reported the top floor rental on Schedule E. I found out that one of the reasons for the audit was showing rental income by itself on the E, with no corresponding expenses. Was told by the auditor - should have included on the C.

[Gail in Virginia]

I agree with Maribeth.

The subrental is part of the self-employment activity and in effect reduces the monthly rent the translator pays the landlord.

I had an audit many years ago of a Schedule C client who owned a building (a residence that was converted to a physician's office). Top floor was residential rental.

I took all the building expenses on the Schedule C - but separately reported the top floor rental on Schedule E. I found out that one of the reasons for the audit was showing rental income by itself on the E, with no corresponding expenses. Was told by the auditor - should have included on the C.

I hate to argue with experience, but I agree with Jainen and Taxbilly. I also think the IT guy needs to do a 1099MISC to the translator showing the amount of rent he paid, and therefore the income needs to be shown separately on the sched C to keep intact easy evidence that the rental was reported. We had a fabric shop that sublet part of their space to an alterations business for years, reported it this way, and never had a problem.

[Maribeth]

I'm confused. Aren't we all saying the same thing? The rent income from the IT guy will be shown on the Schedule C, either as other income or a reduction in rent expense. The bottom line in either scenario will be the same. What am I missing?

Maribeth

[jainen]

>>The bottom line in either scenario will be the same.<<

It will (as long as Schedule E isn't involved). But to deduct less rent requires an additional documentation step or two because the cash flow into the bank account won't match reported sales and the claimed expense won't be consistent with the actual checks. I like records that are simple and show what happened the way it happened.

[Pacun]

How can you rent something for rental income and not have schedule E? Let's say you do it for 10 years, other income is casual income and in this case it seems to me that it is profitable rental activity and therefore, rental income.

[jainen]

>>How can you rent something for rental income and not have schedule E?<<

The translator doesn't even own the property he is supposedly renting. The original post says "guy wants to rent a desk and assist clients 4 hours a week." Nothing about Schedule E real estate except the incidental use of a little bit of space for 10% of the work week. If this were a separate business activity it would still be on Schedule C.