Can you deduct, for taxes, the retail lease space rental payments you make? What are the tax laws governing this matter? As a business owner, you need to be aware of this; as a small business owner, normally without a tax accountant, your grasp of this information can mean the difference of thousands of dollars for you yearly.
We are RDS Real Estate, serving the Greater Fort Worth Metro area with affordable industrial space and commercial property for rent. Call us at 817-439-3224 for more information.
Now, though, let’s talk about those tax laws and regulations for retail space for lease.
What is rent?
Rent is any amount paid for the use of property that a small business doesn’t own. Typically, rent can be deducted as a business expense when the rent is for property the taxpayer uses for the business.
Here are some things small business owners should keep in mind when it comes to deducting those retail space for rent payments.
Retail Lease Space or purchase
- Sometimes a business must determine whether its payments are for retail lease space or for the purchase of the property, because different tax rules may apply.
- Businesses must first determine whether an agreement is a lease or a conditional sales contract.
- Payments made under a conditional sales contract aren’t deductible as rent expense.
Unreasonable rent
Businesses can’t take a rental deduction for unreasonable rents paid. Rent is unreasonable for deduction when it is higher than market value or a professional appraisal.
- Usually, unreasonable rent becomes a problem when business owners and the lessors are related.
- Rent paid to a person you are related to is reasonable if it’s the same amount a business owner would pay to a stranger for use of the same property.
Office in the home
A business owner’s workplace can be in their home if they have a home office that qualifies as their principal place of business.
- Business owners who rent their home and have a home office as their principal place of business may also qualify for a deduction.
Rent paid in advance
Rent paid for a business is usually deductible in the year it is paid.
- If a business pays rent in advance, it can deduct only the amount that applies to the use of the rented property during the tax year. The business can deduct the rest of the payment over the period to which it applies.
Canceling a lease
A business can usually deduct the costs paid to cancel a business lease.
The bottom line
The bottom line is a simple one: study up on tax law or hire a tax accountant who can keep you safe as you navigate the tax waters. This is not something which can be delayed or put off simply because you are not comfortable with it; the health of your business may well depend upon it.
A final word about RDS Real Estate
RDS Real Estate is locally owned and operated with over three million square feet of industrial space and commercial property for rent. Call us no matter what it is you are looking for i.e. warehouse for rent, shop for rent, loft for rent . . . we have it all.