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If I have access to a big hall/room in a building I own and I wanted to convert it into a personal gym. Then one day I say to a friend, you can use my gym if you give me $100 a year, and I will give you $10 back for each person you get to join my gym who will pay $100 a year.

Do I need to start a company to do this? Will I have to pay tax on the money I receive from the possible friends? Will my friend have to pay tax on the $10 he receives for every person he introduces to my personal gym?

I have the same opportunity in the United States and in the United Kingdom.

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    You tagged this both "United-States" and "United-Kingdom". Which is it? – David Oneill Mar 16 '11 at 20:29
  • @david It could possibly be both, but that would need to be clarified. – George Marian Mar 16 '11 at 23:15
  • I have a property in both USA and UK. – oshirowanen Mar 17 '11 at 8:55
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You may want to start a company for a few reasons, the main one would be liability, you don't want your friend to drop a weight on a foot and sue you for millions taking your house away.

You'd need to pay taxes on the income, that's after you pay all your expenses, bills, mortgage interest, insurance premiums (!), equipment depreciation. So it's going to be a lot less than you collect from your friends.

Whether you incorporate or not you have to pay taxes on your income. If it's $200/year IRS may not notice that, if it's $20K a month it would be very hard to hide.

If you pay your friends more than some amount (check the laws) you'd need to tell IRS about it (issue 1099-misc), then your friends must pay taxes on that income.

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  • +1 for liability issue. Not sure how this works in the UK, but I bet it is similar. – David Oneill Mar 16 '11 at 20:25
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    Also, to be clear here. He doesn't HAVE to start a company to do all of this, but it is a very good idea. – JohnFx Mar 16 '11 at 23:13
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It sounds like you're starting a fitness club. Consult your tax professional, but likely you will need to at a minimum report the $100 / year per member as income and pay taxes accordingly. Your friend is simply paying less per year if he introduces someone to your gym, so he should be fine since it is just an expense reimbursement.

In addition, you should verify the laws in your area relating to fitness facilities, the required permits, etc.

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  • What if my friend introduces 13 people, getting $130. Will it still be considered an expense reimbursement even though he only pays $100 a year? – oshirowanen Mar 16 '11 at 19:57
  • See the above comment on issuing a 1099-misc. – NPFinance Mar 16 '11 at 20:03
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    good point about permits, maybe even some zoning restrictions. – Vitalik Mar 16 '11 at 20:03

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