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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2879
Experience:  Over 20 Years experience
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I would like to have my nephew stay at my apartment when he

Customer Question

I would like to have my nephew stay at my apartment when he is in my town for business, but he needs to pay with a credit card so he can submit it as a business expense. Would I need to incorporate as a business in order to take his credit card payment?
Submitted: 9 months ago.
Category: Tax
Expert:  R. Klein, EA replied 9 months ago.

R. Klein, EA :

Thank you for contacting me about your Tax issue. I will work hard to help you understand the issue clearly.

Customer :

OK - thanks

R. Klein, EA :

It's nice that your nephew has a place to stay with his uncle, but having him pay to stay with you seems a little, shall we say, strange.

Customer :

He comes to NYC for business and stays in hotels....he suggested just staying with me instead and paying me instead of paying high NYC hotel expenses.

R. Klein, EA :

Is he planning on staying with you for a significant amount of time such that he is sharing your rent expense?

Customer :

Just a few days a month

R. Klein, EA :

OK, so he's trying to save a little bit of money.

Customer :

no

R. Klein, EA :

Is it his company that he owns, or is he just an employee?

Customer :

he expenses his stays\

Customer :

an employee

R. Klein, EA :

OK, well paying you has two effects. One is that you may now have taxable income and no deduction against it!

Customer :

he figures he can give me the money instead of marriott

Customer :

so would i have to incorporate?

Customer :

and what is the other effect?

R. Klein, EA :

If his company is footing the bill, they really don't care that your are the "hotel" or that they have to pay his Marriott bill. The employee gets no tax benefit out of it either way.

R. Klein, EA :

He does not need to pay you by credit card. You would need to have a credit card account set up just to do that.

Customer :

He pays his expenses on his card and submits them. So how would he pay me then if I couldn't take a card?

R. Klein, EA :

He can pay you with cash or check.

R. Klein, EA :

Only businesses can accept credit cards the last time I checked.

Customer :

And I am guessing that his company is not going to pay a hotel expense to a person, I would think it woudl hve to sound more like a rental place

R. Klein, EA :

You are not running a business of a hotel, are you?

Customer :

i don't know - i am just wondering if he can stay with me and pay me instead of marriott

Customer :

is that running a business of a hotel?

R. Klein, EA :

So the question is: other than it's nice to visit family, what incentive does the young man have to stay at your place versus a hotel? It costs him zero out of his pocket, either way

Customer :

so i can get the money instead of marriot

Customer :

helping me out

R. Klein, EA :

As for you, accepting "rent" for his stay if more than 14 days a year results in taxable income to you.

R. Klein, EA :

14 days or less is a non-tax issue.

Customer :

i would assume taxable income is better than no income, right?

R. Klein, EA :

That is true. There is no point where the tax is more than 100% of the income!

Customer :

right

R. Klein, EA :

Sounds like the arrangement is more of a benefit to you than to him.

Customer :

yes

Customer :

that is the point

R. Klein, EA :

There's nothing wrong with it. Just has no tax effect for him. The company should accept proof of payment whether it is paid in cash, check or charge. For the company, it meets the definition of ordinary and necessary for the company to do business in NY.

Customer :

so they can pay me as an individual for a business expense? or do i need to be a business?

R. Klein, EA :

Just as if he paid a taxi in cash

R. Klein, EA :

There is no prohibition against conducting business with non-corporations or specific businesses!

Customer :

So i just make up some sort of receipt with my name on it?

Customer :

He submits it with his expense report and then gives me the money when he gets it?

Customer :

Do i have to charge him tax?

R. Klein, EA :

No. That's not right. He PAYS you. You may give him a receipt. THEN he gets a reimbrusement.

R. Klein, EA :

If you are not a business, you do not charge a hotel tax.

Customer :

Well i have to give him a receipt so he can submit it

R. Klein, EA :

That can be a piece of paper. It does not have to be a pre-printed form.

Customer :

and woudl a company take a receipt made payable to an individual for lodging?

R. Klein, EA :

That's up to the company.

Customer :

ok

R. Klein, EA :

There is no law stating what a receipt looks like

Customer :

ok

Customer :

thanks

Customer :

have a good night

R. Klein, EA :

Thank you!

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