Aaron's Furniture Rentals type of business

[FTS13]

I have this client who says he runs a "Aaron's Furniture Rentals type of business", he works with people who don't have credit to buy things, he will buy it for them and then his customers has to pay him usually monthly until the item and his interest and fee are paid off. 2012 was his first year in business and it seems like he did very well on it. Should he do a Schedule C and just report the actual profit he makes? Or does he now have an inventory business?

[Guest Taxed]

Is this a rent to own type business?

[kcjenkins]

Yes, Arron's does set them up as 'rent to own'. Although it's an expensive way to buy, they cater to those will poor or bad credit, and I've been told from a client who owned such a business that they get back about half or a little more of the stuff. And they get back their cost in the first 6 months on much of the stuff they sell/rent on 1 year or 18 month contracts. Which well offsets those that move off with the goods down the road, without paying.

And yes, you should do inventory, IMHO. Since so many of the 'sales' will not be completed.

[Terry D EA]

I think he should do inventory as well. Might see a lot of stuff coming and going. Bookkeeping may be a bit challenging as well.

[jainen]

>>Or does he now have an inventory business?<<

Inventory? No, at least not in the sense of cost-of-goods-sold. It's 3-year MACRS property. Code sections 168(e)(3)(A)(iii) and 168(i)(14). You kind of need a fixed asset manager in your software package to handle a return like that.

[Guest Taxed]

FTS13 depending on how much time you will be spending on FAM keeping track of all these depreciable assets and then doing sale upon disposition, you may want to charge by the # entry in addition to your base fees. Over time this could consume a lot of your efforts reconciling.