Hairdresser Rent

[Nashville]

A hairdresser rents a large building which accommodates stations for 4 other hairdressers as well as herself.

She makes a minimal income, some $9K working only two days per week, but charges the other hairdressers rent. The rent she collects from the 4 other hairdressers is more than the building rent, utilities, and overhead associated with the building, thus she also has a small amount of excess income ($2K) associated with renting the building to others.

Should this situation be reported as $11K on Schedule C, or should it be split $2K on Schedule E and $9K on Schedule C?

[ChEAr$]

A hairdresser rents a large building which accommodates stations for 4 other hairdressers as well as herself.

She makes a minimal income, some $9K working only two days per week, but charges the other hairdressers rent. The rent she collects from the 4 other hairdressers is more than the building rent, utilities, and overhead associated with the building, thus she also has a small amount of excess income ($2K) associated with renting the building to others.

Should this situation be reported as $11K on Schedule C, or should it be split $2K on Schedule E and $9K on Schedule C?

There's going to be two schools of thought on this one, or maybe three, considering your last
idea of splitting.

Main question is what services does she provide to the other 4? Or do all make their own appointments and collect their own fees separately? Janitorial services for the building? She pays, right? It's facts and circumstances, but the default setting is
that it is all schedule c income.

[Nashville]

Answer to ChEAr$

Each of the other hairdressers are self-employed with their own clientele, their own records, their own supplies, etc. Most likely the only building duties is to keep their own area clean.

I am aware the IRS would love to have this reported on Sch C to collect self-employment tax, and would maintain that the whole thing is too much businesss associated for any activity to be considered rent.

Facts not given previously: Client had colon cancer operation and did not work for six months during the year and did not do any hairdressing work. All during this time, however, she continued to write checks for the building rent, utilities, etc. and collected from the other 4 hairdressers.

[oceanlovin'ea]

They rent space from her. I have always put it on schedule C as other income. Usually the shop owner is providing some things for them....water, electric and maybe phone services.

Another way to look at is to make them an LLC taxed as an s corp. She would pay herself a salary for her work and the rental income would flow from the s corp to the 1040 but not be subject to se tax. But unless it is a large amount of money the accounting and tax prep for the s corp would cost more than she would pay staying schedule C.

Linda

[ChEAr$]

Ron, I was going to respond this afternoon, but darn it; got interrupted by one of those pesky clients! (God bless em!)

One of the returns I was working on just today involved same situation. Wife owns
a CONDO (not on the Gulf) in a building with other businesses and rented out the premises because she, too, is infirm and can't cut the hair any longer. Since she is not on premises except to visit once in a while, I consider her income rental income
and reporting it on schedule e.

Incidentally, she and husband also rent out two more condos down on the Gulf in Panama city. (see other thread by Linda).

One fly in the ointment regarding the business condo rental however is the fact that
several years ago she gave the condo to her daughter, i.e. put it in her name in
view of other legal considerations. Since she doesn't own the property she's collecting rent on, there's no depreciation she can take. Pity.

[taxea]

Her career is as a hairdresser. The illness was temporary. SOP for this is the rental income is other income on Sch C. The water and other utilities are included in the booth rent, as a rule.
Take total year expense for all the building/business expenses and adjust the rent income out of the SE form with an explanation.