Pawn broker and interest income
jbscpa
Is this interest income subject to self-employment tax?
If so, why?
If not, why not?
If it is not self-employment taxable income. Then where is
it reported? Schedule B?
Thanks
John
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Stuart O. Bronstein
> Schedule C pawn broker earns interest on pawn loans.
> Is this interest income subject to self-employment tax?
> If so, why?
I don't specifically know the answer to this. But I'd guess
it's pretty clear that this is not passive investment
income, but income from a trade or profession. As a result
self-employment tax should be required.
Stu
Gene E. Utterback, EA
> Schedule C pawn broker earns interest on pawn loans.
>
> Is this interest income subject to self-employment tax?
>
> If so, why?
>
> If not, why not?
> If it is not self-employment taxable income. Then where is
> it reported? Schedule B?
This is Schedule B interest, not subject to SE tax. If you
want the cites you can check the IRC and the related Regs.
Gene E. Utterback, EA
Dave Woods, EA
> Schedule C pawn broker earns interest on pawn loans.
>
> Is this interest income subject to self-employment tax?
>
> If so, why?
>
> If not, why not?
Unless the pawn broker is in the business of lending money,
interest would not be self employment income.
> If it is not self-employment taxable income. Then where is
> it reported? Schedule B?
Yes.
--
David M. Woods, EA
Boston, MA 02109
Postings here are general information only and not to be
relied upon as advice.
R. L. Knox
>> Schedule C pawn broker earns interest on pawn loans.
>>
>> Is this interest income subject to self-employment tax?
>>
>> If so, why?
>>
>> If not, why not?
> Unless the pawn broker is in the business of lending money,
> interest would not be self employment income.
>> If it is not self-employment taxable income. Then where
>> is it reported? Schedule B?
> Yes.
WHAT? I'm not an EA or CPA but isn't a Pawn Broker in
business to make loans to people from whom he charges
interest for the use of the money? The "interest" is simply
INCOME to the pawn business, whether he his self-employed or
incorporated.
Dave Woods, EA
> "Dave Woods, EA" <d.w...@verizon.net> wrote:
>> "jbscpa" <jbs...@peakonline.com> wrote:
>>> Schedule C pawn broker earns interest on pawn loans.
>>>
>>> Is this interest income subject to self-employment tax?
>>>
>>> If so, why?
>>>
>>> If not, why not?
>> Unless the pawn broker is in the business of lending money,
>> interest would not be self employment income.
>>> If it is not self-employment taxable income. Then where
>>> is it reported? Schedule B?
>> Yes.
> WHAT? I'm not an EA or CPA but isn't a Pawn Broker in
> business to make loans to people from whom he charges
> interest for the use of the money?
Perhaps you're confusing a pawn broker and a loan shark.
> The "interest" is simply
> INCOME to the pawn business, whether he his self-employed or
> incorporated.
If a person is self-employed, and is not in the business of
lending money, all interest income is reported on Schedule
B. Last time I checked, pawn brokers were not in the
business of lending money, they bought and sold PROPERTY.
--
David M. Woods, EA
Boston, MA 02109
Postings here are general information only and not to be
relied upon as advice.
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jbscpa
Interest received in the course of any trade or business,
such as interest received on accounts receivable or by a
pawnbroker on loans, is subject to self-employment tax. See
Regulation section 1.1402(a)-5(b).
An individual whose lending activity is so extensive that it
constitutes a trade of business, even if it is done part
time, is subject to self-employment tax. Rev Rul 58-195,
1958-1 CB 329.
By the way in this state (Oklahoma), pawnbrokers are allowed
to charge interest on items in pawn. This is in addition to
the income they earn in buying and selling at retail.
Thanks for all the input.
John
Stuart O. Bronstein
> If a person is self-employed, and is not in the business of
> lending money, all interest income is reported on Schedule
> B. Last time I checked, pawn brokers were not in the
> business of lending money, they bought and sold PROPERTY.
Actually, lending money is exactly what pawn brokers do.
The property they take is simply security for the loans. If
the loan is not paid off within the time period required,
the collateral is sold to satisfy the loan.
Stu
R. L. Knox
> "R. L. Knox" <rlk...@netzero.net> wrote:
>> "Dave Woods, EA" <d.w...@verizon.net> wrote:
>>> "jbscpa" <jbs...@peakonline.com> wrote:
>>>> Schedule C pawn broker earns interest on pawn loans.
>>>>
>>>> Is this interest income subject to self-employment tax?
>>>>
>>>> If so, why?
>>>>
>>>> If not, why not?
>>> Unless the pawn broker is in the business of lending money,
>>> interest would not be self employment income.
>>>> If it is not self-employment taxable income. Then where
>>>> is it reported? Schedule B?
>>> Yes.
>> WHAT? I'm not an EA or CPA but isn't a Pawn Broker in
>> business to make loans to people from whom he charges
>> interest for the use of the money?
> Perhaps you're confusing a pawn broker and a loan shark.
>> The "interest" is simply
>> INCOME to the pawn business, whether he his self-employed or
>> incorporated.
> If a person is self-employed, and is not in the business of
> lending money, all interest income is reported on Schedule
> B. Last time I checked, pawn brokers were not in the
> business of lending money, they bought and sold PROPERTY.
A pawnbroker IS in business to make LOANS, (and has been for
several hundred years) holding personal property as
collateral to ensure repayment of the loan, and charging
interest on the loan, the percentage of which is regulated
by the various states.
If the collateral is not redeemed, then the broker may sell
it and report the profit, if any, as income. However, if
the loan is repayed with interest and the collateral
redeemed, the interest is also reported as INCOME.
Regarding self-employment tax, what if all of his loans were
payed back and his only income were interest, he would pay
no SE tax and the IRS won't let THAT happen. See the
following quote from the IRS under Business Income:
"Interest. Interest received on notes receivable that you
have accepted in the ordinary course of business is business
income. Interest received on loans is business income if you
are in the business of lending money."
R. L. Knox
Neither EA nor CPA
rlk...@netzero.net