Renting mailing lists is one of the best ways to increase a company's client database. As with any business, the more people you have on your mailing list, the more leads and profits you will make. Of course, there are a few things that make mailing lists more profitable than other avenues. First of all, there's direct contact between a potential client and a company. That's the whole " Cold Calling " concept. When a prospective client calls a company on the phone, that person is actually meeting with a person, not through an impersonal form of marketing .

Other considerations include the ability to rent mailing lists. With traditional forms of marketing , it can be expensive to purchase targeted traffic, which can cost thousands in advertising dollars. A lot of this advertising dollars goes unused, because people aren't always looking to buy. The disposable income from mailing list ads can replace the lost revenue from cold calling, and with the right targeted ads, the profit margin can be extremely high. The bottom line is that when you rent a list, you are increasing your company's disposable income.

But what about the risk of having your mailing list become a source of direct sales for a non-related business? In order to answer this question, we need to consider a scenario that may seem ridiculous, but true. Suppose you own a catering service, and you acquire a mailing list that contains the names and addresses of only your most successful clients. Now suppose that you then launch an unrelated business based upon those same clients, and that business makes money month after month. You'd be surprised to learn that, even though your mailing list has the names and addresses of your most successful customers, that business would still be exempt from the corporate income tax.

That's because your non-related business receives 100% of its income from another source, and that source is its main customer. Your mailing list rental would classify as a non-related sale, and would therefore be subject to taxation. You might argue that you never intend to sell anything to this person, and that your list simply provides you with a valuable resource, but anyone who knows business will know that this argument is fallacious, and that it is perfectly legitimate to rent mailing lists in order to increase your company's profits. You don't just rent the mailing list; you lease a valuable resource.

So what do you do when you find yourself with a mailing list that you don't intend to use? You use the income-expense form to determine if the rental of the mailing list is deductible. The IRS has established rules and regulations regarding the deductibility of income-related expenses. To begin with, you must allocate the value of the rental based on the fair market value of the property or services involved in your rental arrangement. For example, if you lease a space to hold ten brochures that are priced at two dollars each, your income-expense will be the amount by which the cost of the lease multiplied by ten would reduce your net income.

The second item required on the income-expense form is the location of the rental. The location is a matter of local decision, not federal tax law. It really depends where the business is conducted. However, if the business is conducted out of your home, your mailing list must be a residential mailing list, even if the copies are purchased at a local shop. If you were renting the mailing list to a non-resident, the non-resident's mailing list would not be deductible because he would not be conducting business out of his residence. It would be very difficult for him to establish a residential location.

In cases when the rental of its mailing list is deductible, you may have to pay an additional tax on the value of the mailing lists. The IRS has issued advisory statements to help taxpayers determine which tax applies to the rental of its mailing lists. Generally, the taxpayer would use the value of the list to determine which types of related businesses are considered unrelated business taxable income. Those types of related businesses that are considered unrelated business taxable income are those conducted in the taxpayer's residence, but conducted on behalf of a non-resident alien. Thus, if the mailing list is rental income, you would be taxed on the amount by which the rental multiplied by ten gives you the income.

When you rent a mailing list, you should consider how the rental will affect your business. Will the rental payments be used to offset expenses that otherwise you could lose? Can the rental be used as a basis for an audit? If you decide to rent a mailing list, make sure you understand all the implications.