employee receives tax free pay for rig rent

[featherhill]

my client (also my brother) works as a welder, he owns his own rig (welder and truck) his employer pays hime 15,000 a year extra for rent on his rig how ever it does not show up on his w2 only on his pay check. He just bought a new truck and welder for over40,000. He gets nothing at the end of the year reguarding the 15,000. His boss told him it is tax free money! I worried

[Bird Legs]

Rental of Truck & Rig

You have a right to worry. This rental is not tax free. Am thinking that it probably should
be reported on Sch. C as rental income subject to S E tax.

[Gretel]

Welder

Some years ago I had a client as a welder for one year. He called the arrangement "split-dollar-arangement" or something like it.

He received a 1099 though and claimed since he is using this special truck going to work he gets to deduct all commuting miles. I gave him some but didn't feel comfortable about it and the next year they moved on.

I don't thing this is right and actually don't see any deduction for that matter, maybe a little more gas for driving this special truck instead of a car. Well, while I think about it again, probably depreciation for the cost of the welding truck but only whatever is over and above the "normal" car. How would one determine this?

[taxmandan]

Personal property rental

This is definately not tax free! Either it goes on Sch C as Birdlegs said, or if you want to say he is not in the business of renting property, it can go on line 21 of the 1040 as PPR and no SE tax. The employer should issue a 1099MISC for this money as Rent.

[Unregistered (KEN)]

Rental

Dont know why I'm showing up as unregistered, but anyway why wouldn't he put the rental income on a schedule E? as rental income?
That makes more sense to me than paying self employment tax on it.

[taxmandan]

Sch E and PPR

Schedule E is only used for Rental Real Estate Property, not personal use property.

[DaveO]

If the taxpayer participates in the activity that the rent is earned from it should be classed as SE income and reported on Schd "C".

[Armando Beaujolais]

If the taxpayer participates in the activity that the rent is earned from it should be classed as SE income and reported on Schd "C".

Correct. This issue has been kicked into court plenty of times.

In order to be considered rental, and therefore escape SE tax, the rental has to be clearly separable from the employment. An employee is in the trade or business of being an employee, and if they earn rent in the course of their trade or business, it's self-employment income.

If a carpenter is employed by a contractor, and the carpenter "rents" his tools to the contractor, the rent is self-employment income. If an accountant does tax work for the contractor, but also rents tools to the contractor, that can be clearly separated from the accountant's trade or business, and could be treated as rent not subject to SE.

The bit about it being tax-free money is a myth. I'll make a deal with his boss. I'll promise to stay out of the welding business (partially because I have no idea how to weld and it would be irresponsible and dangerous for me to perform the activity) if he'll stay out of the tax consulting business.

[Unregistered]

It might prove helpful to review Revenue Ruling 2002-35, which seems to cover the situation.

[Ken]

rental

Armandos answer is intresting ( and probably right) , but I say intresting because I work at another job ( not doing taxes) where I rent a space from an individual in a shop. I pay him rent for the space and his (accountant) puts that income on a schedule E so he wont have to pay self employment tax on it.

This kinda seems like the same situation to me. The person is in the same business as I am and claims his earnings on a schedule C, but the money I give him for rent is carried on a schedule E.

[outwest]

Possible: read Rev Ruling 2002-41 directly on point

my client (also my brother) works as a welder, he owns his own rig (welder and truck) his employer pays hime 15,000 a year extra for rent on his rig how ever it does not show up on his w2 only on his pay check. He just bought a new truck and welder for over40,000. He gets nothing at the end of the year reguarding the 15,000. His boss told him it is tax free money! I worried

This sets up a per diem arrangement like the meals per diem specific to welding rigs. Read the whole thing.

Doug

[RLymanC]

Personal Property Rent

Ken......You are renting shop space (realestate) that goes on schedule E.

The welder and truck would be OK on line 21,,,,,write PPR (personal rental property) on line 21 and enter the gross income. The expenses go on schedule A subject to the 2% reduction. If you can't get on schedule A he losses all the expenses.

[Unregistered]

This sets up a per diem arrangement like the meals per diem specific to welding rigs. Read the whole thing.

Doug

I don't see where this fits into 2002-41.

Rev. Rul. 2002-41, 2002-2 CB 75, 6/26/2002, IRC Sec(s). 105

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Employee accident and health plan—medical care reimbursement arrangements.
Headnote:

[DaveO]

Armandos answer is intresting ( and probably right) , but I say intresting because I work at another job ( not doing taxes) where I rent a space from an individual in a shop. I pay him rent for the space and his (accountant) puts that income on a schedule E so he wont have to pay self employment tax on it.

This kinda seems like the same situation to me. The person is in the same business as I am and claims his earnings on a schedule C, but the money I give him for rent is carried on a schedule E.

The big difference is that you are renting real property as opposed to personal property. If the rental period is longer than 30 days and personal services are not provided then its not subject to SE tax.

A beauty shop owner who rents out a chair without providing any other service could reort that income on Schd E as well.

[Armando Beaujolais]

The big difference is that you are renting real property as opposed to personal property. If the rental period is longer than 30 days and personal services are not provided then its not subject to SE tax.

A beauty shop owner who rents out a chair without providing any other service could reort that income on Schd E as well.

Schedule E is for rental real estate only. You do not report rental of personal property on Schedule E.

It's true that generally renting real estate is not subject to SE tax because of a specific exemption (Reg. 1.1402(a)-4). It is not true that a beauty shop owner who rents a chair could avoid SE tax on that income, assuming the beauty shop owner is in the trade or business of being a beauty shop owner. That's what this discussion is all about.

When I hire a self-employed contractor to renovate my house, he owes self-employment tax on what I pay him, less expenses. No matter how many times we call "Rudolf," and no matter how many "nod, nod, wink winks" we do, under the law he cannot escape SE tax by saying that a portion of what I paid him was rent for his tools. What I paid him was income from his trade or business.

IRS Pub 334. "If you are in the business of renting personal property...include the rental amount you receive in your gross receipts on Schedule C..."

A beauty shop owner who rents out a chair is in the business of renting personal property.