Sch C for business in another state

[oceanlovin'ea]

Client has been helping his brother who lives in another state. Brother is opening an auto body shop. Previously operating business under wife's name but doesn't want to do that anymore. So he has convinced my client to use his business name to operate the business. He will do all the work...most of the time. I know crazy idea and I am discouraging it a lot.

But brother is getting shop ready and going....got first job in around the end of December but didn't complete til 2011. So no income from business.

Renting a large aluminum type building for use as shop. Brother constructed an office area in shop since it was just one big open space. Also paid rent for 2 or 3 months.
Would the supplies purchased to make office area just be written off as supples? You can't depreciate anything....it is a rented space. Brother paid for this stuff and will be paid back when he does some work and business has money to pay him back.

Such a strange situation and really makes no sense to me. But I haven't talked to both of them together. Wish I could.

Linda, EA

[Burke]

Client has been helping his brother who lives in another state. Brother is opening an auto body shop. Previously operating business under wife's name but doesn't want to do that anymore. So he has convinced my client to use his business name to operate the business. He will do all the work...most of the time. I know crazy idea and I am discouraging it a lot.

Such a strange situation and really makes no sense to me. But I haven't talked to both of them together. Wish I could.Linda, EA

It wouldn't be that this brother is in "another state" which just happens to have an income tax, and Florida does not?

[oceanlovin'ea]

Well, come to think of it. Indiana does have a state income tax and Florida doesn't. But I actually assumed that because he was operating a business in another state with an income tax that he would have to file an Indiana state income tax return. So it wasn't a matter of getting out of paying state income tax.

Other personal issues are involved.

My question was more about deducting the expenses this year and how you would deduct the cost of building an office area in the building. It will be torn down when they leave....not permanent structure.

Linda, EA

[Burke]

Well, do you suppose you could amortize those things as start-up expenses (5-yr)? Kind of makes sense. Except it appears FL brother paid them? IN brother could deduct when he actually pays them back, IMO.

[AJsTax]

Doing improvements

to a leased building is usually depreciated as leasehold improvements. If the office will last for more than one year then, no, it is not an expense. The question becomes, whose depreciation is it? Is the client making a loan to the brother and everything belongs to the brother or is he investing in a partnership deal?

[oceanlovin'ea]

No Indiana brother paid them.. The way this is to work is the Indiana brother does the work and get paid for doing it.
Florida brother will pay bills, have things in his name and pay Indiana brother all the profits.

Indiana brother lent him the money to do this work. He will be paid back when money starts to come in. But can't deduct next year because they are this year's expenses.
If he doesn't deduct it, he loses it.

Linda, EA

[S T]

Is it possible

That this nothing more than just a personal loan to the brother?

Wouldn't the brother in Indiana, take all of the expenses and depreciation, and then have a loan payable to the Brother fronting the money?

Unless as someone else pointed out that the Brother fronting the money - should be involved in the venture such as a Partnership??

I agree with AJ - on all of the issues, on ?? partnership, ?? loan, ??on the bldg expenses would be "leasehold improvements"
but not sure who would claim.

I am thinking the brother in Indiana, and the brother fronting the $$ just has a personal or family loan.

Sandy

[oceanlovin'ea]

I think I will tell him that since he didn't actually pay any of the bills, he can't deduct anything.
He did already tell his brother in Indiana that he needed to get his old business resurrected and use it. Hopefully that is what will happen.

My client hasn't spent any money or taken any in. So he has nothing to report.

Linda, EA

[Gary2]

Client has been helping his brother who lives in another state. Brother is opening an auto body shop. Previously operating business under wife's name but doesn't want to do that anymore. So he has convinced my client to use his business name to operate the business. He will do all the work...most of the time. I know crazy idea and I am discouraging it a lot.

But brother is getting shop ready and going....got first job in around the end of December but didn't complete til 2011. So no income from business.

Renting a large aluminum type building for use as shop. Brother constructed an office area in shop since it was just one big open space. Also paid rent for 2 or 3 months.
Would the supplies purchased to make office area just be written off as supples? You can't depreciate anything....it is a rented space. Brother paid for this stuff and will be paid back when he does some work and business has money to pay him back.

This is a tangential comment, but I had a really hard time following this. May I suggest avoiding pronouns unless it's absolutely clear, and always including the grammatical subject? For example, with "Renting a large aluminum ...," I have no idea whether you mean the brother or your client did the renting, let alone whose state it is in. I shouldn't have to analyze the entire post just to infer the person in a particular sentence.

I don't mean to pick on you, as I've seen other posters write similarly. It's a sign of the times, especially now when we're all, hopefully, quite busy. Also, my junior high typing class biases me in favor of being long-winded. But it takes just a little extra typing, and in the long run pays for itself by getting more responses, quicker responses, and fewer distractions to clear up misinterpretations.

Many thanks,
Gary

[oceanlovin'ea]

sorry

I'm sorry my post was not clear. I am under the assumption that the brother rented the shop space. But when you mention it, I 'm not entirely sure who signed the rental agreement. I know brother in Indiana has paid the rent since October.or November..The shop is in Indiana.

Linda, EA

[Burke]

Also, on the matter of leasehold improvements, it needs to be in the lease and it should state who is responsible for the expense, landlord or tenant. Apparently, the landlord is a completely different person than the 2 brothers?

[oceanlovin'ea]

yes...different person

Talked to client tonight. The lease is in the client in Florida's name. The lease did not specify anything about leasehold improvements. The building was a shell and now it has an office area. Not sure what they will do with it if they move.
But brother in Indiana stayed in his last location for years and years. Probably won't move unless he dies or moves to Florida.

Client is going to go to Indiana soon and help brother get his old business started back up and things going in his name. Before he goes we will have a long talk about this deal!!!!

I really do appreciate all your comments. It helps to think of things from all prospectives.

Linda, EA