How Would You Answer The Days?

[Snaggletooth]

Thanks to Respondents

Thanks to all of you. Please note that only Bill answered the original question, but the other comments were related to the issues.

Taxpayer is a sole proprietor (against my recommendations) and is not going to change his ways at 77 years old. I stated on the original post that I expected replies telling me to claim the rent as "other income."

[Burke]

That was going to be my question too, as the type of business entity was not given. Note that even if net earned income is over $118,500, it would still be subject to Medicare taxes. If S-Corp, just book as addl income. No Schedule E. If not an SCorp, or LLC taxed as SCorp, I would list on Schedule C under "Other Income." I don't see it as "rent."

[spanel]

Optometrist has his own office and facility. He takes several days off during the year, during which a travelling ophthalmologist comes in and performs expensive surgical procedures for local customers. Ophthalmologist travels from town-to-town doing these procedures.

Over a total of 10 days during the year, the ophthalmologist pays the local optometrist $7500.

The Optometrist does not report this $7500 as revenue for his practice - he reports it as rent. For purposes of answering the question, assume this is proper reporting, although some purists may insist it should be additional income for his practice instead of rent. The $7500 rent is reported with zero expenses.

If he reports as rent, how do you answer the #of days of rent where we are supposed to split between rental available and personal use? A few possibilities exist:

a) 10 days rent, 0 days personal.
b) 0 days rent, 0 days personal.
c) 10 days rent, 355 days personal.
d) none of the above.

Understand that the treatment can vary greatly depending upon the answer...

What is the net profit of this business? If its over $118,500 its a mute point. Is this business not incorporated? Again, for an S corp it would be a mute point. (if he is not, why not!?!? surely hes making a healthy profit)

Is he a one man show? Does he have employees that also do exams? Was the business open otherwise and he just not there? Did his business bill out these clients and reimburse the "other doc?"

I vote all Sch C if a sole prop. I also vote he needs to form an Scorp and he wont have to worry about this anymore.

Chris

[taxea]

I would report it as other income on his business return and if subject to SE I would allocate that amount out of the SE calculation

[TaxGuyBill]

That what entering the days is for. Your software should automatically allocate the expenses based on the days (like a vacation home). Although I'm not sure if the 'days method' would necessarily apply for a non-home when the total does not equal 365, but in this case it will properly prorate the expenses. It gives the rental deduction for 100% of the space for 2.74% of the year.

That amount then needs to be subtracted from the business expense.

You can't claim the income is not subject to Social Security and Medicare taxes (by putting it on Schedule E), if you are claiming 100% of the expenses are a deduction to reduce Social Security and Medicare taxes. The taxpayer can't have it both ways. If income is separated to Schedule E, so must the expenses.

[Snaggletooth]

C. He can't claim 100% of the expenses as business expenses, if part of it is for a rental arrangement.

I had thought of allocating occupancy costs, but this rent is not for a percentage of floor space. He evacuates the entire building and allows the specialist full use.

[TaxGuyBill]

C.

However, you need to enter the expenses as well (utilities, mortgage interest, depreciation, etc.) and then subtract that amount from his business expenses. He can't claim 100% of the expenses as business expenses, if part of it is for a rental arrangement.

[Snaggletooth]

Optometrist has his own office and facility. He takes several days off during the year, during which a travelling ophthalmologist comes in and performs expensive surgical procedures for local customers. Ophthalmologist travels from town-to-town doing these procedures.

Over a total of 10 days during the year, the ophthalmologist pays the local optometrist $7500.

The Optometrist does not report this $7500 as revenue for his practice - he reports it as rent. For purposes of answering the question, assume this is proper reporting, although some purists may insist it should be additional income for his practice instead of rent. The $7500 rent is reported with zero expenses.

If he reports as rent, how do you answer the #of days of rent where we are supposed to split between rental available and personal use? A few possibilities exist:

a) 10 days rent, 0 days personal.
b) 0 days rent, 0 days personal.
c) 10 days rent, 355 days personal.
d) none of the above.

Understand that the treatment can vary greatly depending upon the answer...