So I am ending my first year of freelancing (spent my first few years operating in a full-time position) and have a quesiton about my kit rental. I understand that my day rate is normal taxable income, but is my kit/box rental?
I was on one set and paid through CAPS and the box rental was considered "non-taxable income" on the time sheet. I received the check with the taxes already taken out of the day rates. Fine, whatever. But now I am finalizing all my income for all the gigs that I have been W9ed and have charged a daily labor rate as well as a daily kit rental.
Is a kit rental considered the same kind of income as my day rate? My accountant says no, I believe him, but I figured Id come to yall, especialyl since I had a discrepancy on one payroll check.
I realize that I can write off my purcahses for my kit, just wondering if anything changes with the income.
Just went through the IRS 2013 Publication 525 TAXABLE AND NONTAXABLE INCOME
pg 16 reads:
Rents From Personal Property
If you rent out personal property, such as equipment or vehicles, how you report your income and expenses is in most cases determined by:
Whether or not the rental activity is a business, and
Whether or not the rental activity is conducted for profit.
In most cases, if your primary purpose is income or profit and you are involved in the rental activity with continuity and regularity, your rental activity is a business. See Publication 535, Business Expenses, for details on deducting expenses for both business and not-for-profit activities.
Reporting business income and expenses.
If you are in the business of renting personal property, report your income and expenses on Schedule C or Schedule C-EZ (Form 1040). The form instructions have information on how to complete them.
Reporting nonbusiness income
If you are not in the business of renting personal property, report your rental income on Form 1040, line 21. List the type and amount of the income on the dotted line next to line 21.
Reporting nonbusiness expenses
If you rent personal property for profit, include your rental expenses in the total amount you enter on Form 1040, line 36. Also, enter the amount and “PPR” on the dotted line next to line 36.
If you do not rent personal property for profit, your deductions are limited and you cannot report a loss to offset other income. See Activity not for profit under Other Income, later.
You can read the full code here (cant figure out how to upload it)
It seems to me that the language "In most cases, if your primary purpose is income or profit and you are involved in the rental activity with continuity and regularity, your rental activity is a business." makes it pretty clear that it is taxable income, however there is still the question as to whether or not it is "profit."
At this point, for me, the money that comes in for the kit rental is not profit, Im paying off an expense. But I guess then its income. Anyways, if youve got any thoughts, let me know.
As Mike pointed out above, LLCs are entitled to a different set of rules so maybe its time for me to just get that LLC.
I thnk Im going to follow through with this tax guy this year, but I am pretty sure my 2014 taxes will be with someone else. I am using a guy who is good with freelancers, but I have found that many of his client are assistant editors and the like, not operators with kit rentals etc.
Anways, IRS Publication 535 has this to say, which definitely puts the kabosh on non-taxable in our situation
If you do not carry on your business or invest ment activity to make a profit, you cannot use a loss from the activity to offset other income. Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit. The limit on notforprofit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.
In determining whether you are carrying on an activity for profit, several factors are taken into account. No one factor alone is decisive.
Among the factors to consider are whether:
-You carry on the activity in a businesslike manner (YES)
-The time and effort you put into the activity indicate you intend to make it profitable
-You depend on the income for your livelihood
-Your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business) (YES)
-You change your methods of operation in an attempt to improve profitability
-You (or your advisors) have the knowledge needed to carry on the activity as a successful business
-You were successful in making a profit in similar activities in the past
-The activity makes a profit in some years
-You can expect to make a future profit from the appreciation of the assets used in the activity (YES)
guys, it's INCOME. Rental income but 1099 income nevertheless. depending on how you structure your equipment purchases you could (and possibly can I haven't looked at the rules for this year) do a part 179 accelerated deprecation on the gear to offset income. Those avenues are going away.
Bottom line is that it IS taxable and anyone who says otherwise probably isn't going to stand up for you in your audit.
The Accountant I have used 12+ years tells me, if it's a 1099 you get, your gonna pay taxes on it, BUT there are deductions I can use in the course of working that will offset the amount that I will have to pay.
I've had one instance where the IRS sent me a big big bill and it ended up being the production company's fault. They Double reported my income from them. The CPA got my letter, wrote the IRS a very strongly worded letter and the IRS sent me a letter 3 weeks later letting me know the case was settled and all was good.
Not an LLC, or Corp. Just a sole proprietor. I know I would keep more money if I was a corp, or LLC, etc.. I just don't want to worry about doing that paperwork or spending the time to do that paperwork. As it is I file taxes in at least 3 states per year, in 2011 It was 8 states!
Bottom Line, Your gear rental is INCOME, therefore who ever paid you for your gear rental should be sending you a 1099 form which you are responsible to pay the taxes on that money and any other income you have received. Just like Eric stated. Best way to offset the 1099 income and having to pay all that tax is come up with business related purchases which translate into deductions. Try to keep those amounts equal and you'll never have a problem =)
Alright, I have read through all of these posts and I am convinced that I will have to pay taxes on my rental income. Here is my situation:
I have received around thirty+ 1099's. All of them have the amount paid in box 7 "Nonemployee compensation." However(2) of them have the rental income in box 3 "Other income", and (1) of them has the rental income in box 1 "Rents."
As I enter the information in to TurboTax my amount owed adjusts the same whether the rental amount is in any of those three boxes: Rents, Other income, or Nonemployee compensation.
But TurboTax does note this:
"You may have income that has been incorrectly reported in Box 7, which should have been reported in Box 3 (Other Income). If you have either of the examples below, ask the person or company that sent the 1099-MISC to give you a corrected form. The amount should be removed from Box 7 and entered in Box 3. Otherwise, the IRS will consider this self-employment income and you will have to pay self-employment tax on the income."
Yes, I do plan on consulting with a legitimate CPA before I file. But I wanted to see if anyone here has run in to this.
-I know I will have to pay taxes on that income. But is it a lesser tax than my labor/services?
-Is it worth it at this point to file for an extension and have all of those companies re-issue a correct 1099? Or just file the 1099's correctly and know that I have the invoices correct on my end?
I don't know any of that and I hope you have a relationship with a CPA already. Being a few days before April 15 and with all CPAs swamped right now I'm not sure how many good ones would take your call now?
Good luck and start with IRS.gov with questions or Google too?
There may be some cases where money reported on a 1099 doesn't result in self employment taxes but I believe they do for our purposes regardless of which box they put it in. Of course I am not a tax professional so take that with a grain of salt.
Just to be clear, the title of this thread is what payroll companies call it because they don't tax kit fees before sending to you. Kit fees are definitely taxable income, except for the deductions you may claim to offset them.
As far as whether or not self employment tax applies, I am not sure.