Independent Contractor vs rental agreement

[smvetterman]

I am paying a flat rate to someone to use their space to do business out of, and they want to set it up as an Independent Contractor agreement vs a rental agreement because they are unable to sublet in their rental contract. What does this mean for taxes? 

[Carl]

Really, nothing on the tax front for "you". But on the legal front, it's quite apparent that you are knowingly participating in an illegal activity since you are aware they are not allowed to sub-let space in the property per an existing rental agreement. If/when the landlord/property owner finds out about it, you and the current tenant can expect a fairly swift eviction. Get permission from the property owner for this. They "may" allow it. If you don't ask, then there's no chance.

[rjs · Accepted solution]

On your tax return, or the tax return for your business, you would have to report the expense as contract labor instead of rent. It would not make any difference in your total business expenses or the amount of tax that you pay. You would have to issue a Form 1099-NEC to the person you are subletting from, and file the 1099-NEC with the IRS.

And of course you are lying. The IRS might not care much, since it doesn't make any difference in your tax. But if they happen to notice it, it might make them want to look into what else you might be lying about.

A shady deal just doesn't seem like a good idea to me.

[Critter-3]

Add on the risk if there is an accident of some kind ... if you are there illegally you could not hold the property owner liable.  Find a better place to rent that is legal. 

[smvetterman]

This was very helpful, thank you. And I have decided not to persue the shady deal!