If I own a salon and collect rent for my chairs, is that considered rental income? Do I report that on Schedule E? Is it subject to self-employment taxes?

[Anonymous]

Also, is it better to have my salon as an LLC or S-Corp? Are there any tax advantages?

[Bsch4477]

yes, your rental income is reported on Sch E.  Rental income is not subject to self employment tax. 

in general S-Corps are more appropriate for a business with a high income relative to what a reasonable salary would be for that business.  The decision about your business structure should be made On the basis of knowledge obtained by you in conjunction with consultation with your accountant or financial advisor. The site below can be a start for you to educate yourself. 

https://www.legalzoom.com/articles/s-corp-vs-llc

[Carl]

If i own a salon and collect rent for my chairs, is that considered rental income?

Yes. But how it's reported on your tax return depends on your business structure. Lets assume your business is a sole proprietorship or single member LLC.

If you are "in the business" of doing other's hair, then you are self-employed and that income is reported on SCH C as a part of your personal 1040 tax return. The "rent" you are paid would be treated the same as all your other business income and included in the total business income received by your business. In other words, the chair rent is paid to your business, and not to you personally. I have "rent" in parenthesis because what you call rent, could actually be called other things. For example, if you charge on a per-client basis, then that income would be more akin to commission income. If you charge a percentage of what the renter makes, that would be another form of commission income. If you charge per hour or per day, that could be considered rent. 

Overall, if you are "in fact" running a SCH C business, then all income including what you charge for "chair rent" would be reported as income "to the business" on SCH C.

One major requirement for a rental business to qualify as a SCH C business, is that you must provide your tenants (or "clients" in your case) continuing services on a recurring basis that are "directly benificial to the tenant/client".

I'm sure tat you do "in fact" provide recurring services on a regular basis to your renting clients. For example, I'm sure you provide them at least "some" of the things they use in their day to day conduct of business such as brooms to sweep up cut hair with, dustpans to collect it in, and trashcans to dump it in, as well as you pay for the pickup of that trash on a recurring basis. You also privide the sinks they wash hair in, along with the water they use to wash that hair.

So in my book, there is no question you operate a SCH C business and "ALL" business income from "ALL" sources would therefore be reported on SCH C. Nothing gets reported on SCH E.

[Bsch4477]

There is a lot of debate on CPA websites on whether chair rental income is to be reported on Sch C or Sch E. After reading many discussions I have to agree with @Carl that the income should go on Sch C. 

[Critter]

Agreed ... the chair rent income  needs to go on the Sch C where the expenses for the common use property will go against the income it produces. 

[ohanataxservices]

Agree with Carl!  In the standard salon setting, all stylists share the common areas such as shampoo bowls which makes it Sch C income as the landlord provides substantial services. 

[weedite24]

I found this post because I have the same question. I am wondering if those of you that answered knows if the answer is based on whether or not I actually do hair in the salon myself as a stylist or if I am just leasing a building and subleasing to other stylists. 

[DaveF1006]

No, you have a Salon  and this is considered self-employment income that is subject to SE taxes. As far as commenting on which legal structure to use for your business, this is out of scope for our purpose. We can only answer direct tax questions and how to report income prop

[ohanataxservices]

If you rent chairs to other stylists in your salon, and they share any of the common areas of use, such as shampoo bowls, towels, capes, color room, washer/dryer, receptionist, etc, it would be Schedule C income.  If you're renting completely, totally separate rooms or suites to them in where they don't have access to any common areas, it would be Sch E rent.

[ohanataxservices]

It is NOT rental income reported on Sch E if you provide substantial service ie: common areas (shampoo bowls, towels, capes, color room, etc) but would be Sch C income subject to self employment income.