Discussion:MaryKay auto lease

MaryKay provide auto through lease agreement to director. Marykay makes the lease payments. The payments that MaryKay makes are reported on 1099Misc as other income. In turn it is reported as taxable income. The director needs to meet and maintain a sales volume to keep the car.

1. Can she deduct the lease payments since it was reported as income. 2. Is the lease payment subject to self-employment tax. Any reference would be appreciated.

Are gifts such as rings, bracelets subject to self-employment tax. These are reported as other income on the 1099-Misc.

The rep can only deduct expenses that she paid. That may include the gas, oil, maint of the vehicle which is for business only. If the vehicle is used less than 50% for business, then take a standard deduction for it.

All sched c income is subject to se tax. Income less the expenses is net income which is subject to se tax.

With reference to the lease payment I am reasoning that since it was reported as income it ia a dedectible business expense as the car was used in the business.

yes, of course she could deduct the business use percent of either actual operating cost or the business standard mileage rate.

I've already given you the answer on the auto expense.

(real gifts wouldn't be {income} taxable, would they? so the fact that you know that these are taxable should lead you to question where they came from - the sch C activities)

On the auto expenses-I'm not sure she can use the standard deduction as she doesn't own the car. The standard mileage amount factors in depreciation. She can clearly deduct the actual business portion of the vehicle operating expenses.

Roy seems to suggest that the rep can deduct the lease payments (made by the corporation and included as income in her 1099) as if she had made them herself. That doesn't make sense to me -- she didn't pay them. Of course she can deduct the business portion of the actual operating costs. I don't see how she can use the mileage rate, though, since she is neither the owner nor the lessee of the car.

[Publication 15B] http://www.irs.gov/pub/irs-pdf/p15b.pdf

"Working Condition Benefits This exclusion applies to property and services you provide to an employee so that the employee can perform his or her job. It applies to the extent the employee could deduct the cost of the property or services as a business expense or depreciation expense if he or she had paid for it. The employee must meet any substantiation requirements that apply to the deduction. Examples of working condition benefits include an employee's use of a company car for business and job-related education provided to an employee.....

However, instead of excluding the value of the working condition benefit, you can include the entire annual lease value of the car in the employee's wages. The employee can then claim any deductible business expense for the car as an itemized deduction on his or her personal income tax return. This option is available only if you use the lease value rule (discussed in section 3) to value the benefit."

This doesn't mention schedule C, but it is reasonable to me that the IRS may allow the business portion of the cost of the lease as a business expense on schedule C since this portion would be excluded from the director's income by MaryKay if MaryKay were excluding the value of the working condition benefit. I'd contact the IRS for info. Worst case, the business portion of the lease payments can be deducted as an itemized deducton on the director's return. As to how to determine the business portion, see Publicatin 15B, section 3.

This would be the same as if the 1099-Misc included payments for business travel or supplies provided to the non-employee (or a W-2 included the entire value of the employer provided vehicle, part of which can be deducted on form 2106).

the rep can be viewed as entering into a sub-lease of the car. The rep is trading the money payment she, or he, could have received for the use of the car. Therefore, the cost, or rent of the car to the rep is known. I would call it a lease, because the IRS has use the term lease to include a very short period of time.

I disagree, as is my wont, with Katie and ask her to rethink her position.

I guess taxoncall accidental posted incomplete facts.

Happy 4th of July to all!

I wonder what the Founding Fathers would have thought about the intrusiveness of the Internal Revenue Code - probably a General Chat type of discussion.