Income!

[hauss]

Do I have income if my tennants send checks (out to my banks and credit card companies) to pay my bills instead of giving them directly to me? In other words, do I need to pay taxes, or is this a “gift” which will undoubtedly exceed the allowable?

Just asking…

[Padeye]

Not a good idea to ask legal advice in this arena. My WAG is the IRS will see right through this loophole you think you have created.

[LSLGuy]

You have income, period. You knew that already.

You’re just speeding while hoping no traffic cops are around.

The question, as always, is how easy is it to be caught at it.

[astro]

Playing illegal games like this makes you subject to the good graces of your tenants who now have considerable leverage over you. Beyond the ethical issues, are the tax savings worth the risk if a tenant decides playing these games makes you eminently blackmailable?

You are/would be handing them massive power over you.

[Inigo_Montoya]

Aw c’mon folks! There’s nothing illegal about having other people pay your bills.

But. It’s still income. The good people at the IRS & Dept of Treasury have already thought about this. There’s a technical term for it which eludes me at the moment (my Tax Textbook is at work and I’m not), but the upshot is this:

You have received income if you receive a measurable financial benefit from your tenant in the form of a payment directly to you or on your behalf.

I’ll pop back in if I can remember the term–then I’ll be able to post a cite for ya.

[vetbridge]

Of course, if your tennant is an artist and pays you with paintings which you than trade with the grocer for food…

But this form of tax evasion is also illegal. Commonly done, but illegal.

[Inigo_Montoya]

Constructive Receipt is the tax doctrine that will be applied. By having your tenant make payments on your behalf and for you benefit, you are exercising rightful control over the money–so They consider it yours.

[Q.E.D]

@vetbridge

But this form of tax evasion is also illegal…

Wrong:

While bartering was once considered a form of potential tax evasion, the past 16 years have brought credibility and growth to this once underground economy. What the government can’t prohibit, it regulates. So in 1982, the Internal Revenue Service passed the Tax Equity and Fiscal Responsibility Act giving trade exchanges third-party record-keeper status, the same legal status as banks, credit unions, security brokerages and credit card companies. This gave trade exchanges and the bartering industry a boost into the mainstream of acceptable business practices. The regulation requires trade exchanges to report bartering transactions.

[vetbridge]

@Q.E.D.

Wrong:

Wrong or misinterpretation? While I know that barter can be done legally, most people that I know who do barter do not do the record keeping/etc required by the IRS. That was why I used the term “tax evasion”.

So, for example a cosmetologist who cuts her neighbors hair in exchange for the neighbor providing baby sitting services can do this above boards and legally, but really why would she?

[Q.E.D]

@vetbridge

Wrong or misinterpretation? While I know that barter can be done legally, most people that I know who do barter do not do the record keeping/etc required by the IRS. That was why I used the term “tax evasion”.

Yes, but you didn’t say that. You more or less said barter is illegal and a form of tax evasion. It is not necessarily either of those things.

[hauss]

So, if I am lucky enough to have somebody start sending checks to my mortgage company because I saved their son from a car fire, I can’t really fully benefit from that?

[Tim_T-Bonham.net]

@hauss

So, if I am lucky enough to have somebody start sending checks to my mortgage company because I saved their son from a car fire, I can’t really fully benefit from that?

Certainly you can benefit from it – your mortgage payment was paid. But you can’t (legally) evade paying taxes on this income.

So if by “really fully benefit” you mean ‘I receive the income, without paying any taxes on it’, then no, I guess you can’t. Not legally, at least.

[Tess_of_the_Derbyville]

Depending on your situation, you may be much better off tax-wise by declaring the rental income and claiming all the available deductions. Depreciation is particuliarly nice because it can be a big annual deduction that you don’t actually have to spend any money to earn. Crunch some numbers and see if this works for you. It does for me. Nice when doing the right thing is also the smart thing.

[Dewey_Finn]

@hauss

So, if I am lucky enough to have somebody start sending checks to my mortgage company because I saved their son from a car fire, I can’t really fully benefit from that?

That would be a different situation. In the original situation, the money was given in exchange for renting an apartment. In this situation, the money would be considered a gift, and up to (I think) $11,000 per year, no taxes will be due. Beyond that, the giver will owe taxes.