Too lazy to look this up.

[Safire]

Is there any reason why a person who owns a OTR tractor could not lease that piece of equipment to his soley owned S-Corporation?

Long story short, we are trying to save some money. This one truck requires additional insurance but the insurance company wants to slap the additional insurance to the other 8 OTR trucks that do not need it. We don't want to pay self employment tax by breaking this one truck out to it's own business, that's why we went with S-Corp to begin with.

The truck is registered to the taxpayer, can we just lease it to the S-Corp and claim the income on front of 1040 as PP Rental?

[Safire]

OK, I looked it up.

I see no reason he can't do it, but I see no way for him to take depreciation.

[Gretel]

Truck Rental

Since T/P is in business with trucks I strongly believe this rental is subject to SE. Maybe it makes a difference if leases as shareholder or leases as employee since if employee who is not shareholder at the same time leases equipment it's not subject to SE.

[Bees Knees]

TheTaxBook, pages 18-7 and 18-8 has a discussion on renting stuff to your corporation. The basic logic is that although it is taxable rental income to the shareholder, it is not payroll and thus avoids payroll taxes.

However, there are several situation where the IRS can reclassify the rental arrangement as wages subject to payroll taxes. Basically, if the shareholder is providing services for the corporation as an employee and the rental provides equipment or vehicles for the shareholder to use in providing those services, then the rental arrangement is really nothing more than additional compensation, subject to payroll taxes.

Several examples are given:

In Charoltte’s Office Boutique, Inc., Tax Court, Aug. 4, 2003, royalty payments for use of a customer list were reclassified as wages. In Letter Ruling 2001127004, renting tools and equipment to the employer are treated as wages unless the rental activity has no connection and is clearly separate from the employment relationship. In Revenue Ruling 2002-35, payments made to employees for equipment that is required as a condition of employment are taxable wages, unless the amount is paid under an accountable plan.

There were a few others. It seems difficult to do, and I think the IRS is really starting to crack down on rental arrangements designed to avoid payroll taxes.

[RLymanC]

Rental Equipment

Bees,
I believe they already did in the logging industry. Timber fallers used to get a 1099 from the contract logger for the use of their personal chains saws used to fall timber.

IRS clamped down on that one, really got after the contract loggers.

The fallers use to put it on schedule C because it was in box 7 as non-employee compensation.
I put it on line 21 as persoanl property rental, expense on sch A, and no SE.

Question:
What do you do with 1099 box 7 income when the recipient is clearly not in business.

[Safire]

thanks

Thanks for the help. The purpose of trying to do this IS to reduce the SE. I was trying to avoid having to file that income on a SCH C.

It's not that we don't want him to have to pay any SE, he gets more than a reasonable salary from the S-Corp. If we had been able to just take this truck into the S-Corp, this profit would have flowed through to him as ordinary income.

The reason we had to separate this truck from the others in the fleet was to save appx. 17k a year in addittional unnecessary insurance.

It's a dilemma. I would never advise him to outright avoid paying taxes, I just wanted to save him some money if legally possible.

Can he agree to let the company use the truck for nothing? Just the reimbursement of property tax and insurance? That way the profit would stay in the S-Corp and flow through.

If we title the truck into the S-Corp, he gets hit with the addittional insurance bill.