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Level 1

Are there taxes that need to be paid when renting out space?

I bookkeep for a service business that installs garage doors. The owner has an extra office at his shop that he rents out. This year he created a property management LLC and receives the rent into a business account under the LLC. First, how would I record the transactions when receiving rent payments? And second, are there taxes that need to be paid on this LLC? We are located in WA and on the DOR website it seems like there isn't an excise tax for this situation, but I want to be sure I'm not missing any other taxes as I'm fairly new to the bookkeeping world. Thanks for any advice!

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Community Champion

Are there taxes that need to be paid when renting out space?

Add an account in your chart of accounts for Rental Income and since renting office or even residential space is treated uniquely i highly suggest tracking all rent income and expense by using Class Tracking so you can fill out the Schedule E properly for theLC which will report separate from his other businesses. It would be better to split it off in a separate company file but that is another discussion.

 

There is probably not a sales tax on office rent, check the sales tax rules in your state. If it were an Airbnb there would be city hotel and amusement taxes to consider.

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Community Champion

Are there taxes that need to be paid when renting out space?

Really a question for your Tax Accountant.  A 5 minute call should clear things up, and since we're getting to the end of the year, it's even more important to do it now so you can get the books set up the way the Tax Accountant needs/wants them.

 

From my outside prospective...  I believe you're saying there was originally a Garage Door business, which I assume had it's own Tax ID??  (e.g. Biz #1)  Then the owner created a SECOND LLC... so if truly a new LLC vs. a "Doing Business As" (dba) running off the first business, then it has it's own Tax ID??  (e.g.Biz #2) 

 

So this would mean you should have two SEPARATE set of books.  It's possible that the Tax Accountant may tell you to just keep everything in the original business and they will break everything out, but they may also tell you to make sure everything is kept separate.

 

And noting that you posted this in QB Online, that means a new Online account.  Unlike QB Desktop, you can't have multiple businesses under the one QB Online account.  (NOTE: You can link the different QB Online accounts under one login, but you do need to sign up for two accounts.)

 

As for how you enter the rental property transactions, it depends upon how detailed you want to be and some other variables.  Here's what I think would be the minimum you'd need to track.

 

If just simple rent, then you simply need to create a Rental Income Acct and show the deposits there.  The rent payments for a lot of properties may be split into the Base Rent and the CAM (Common Area Maintenance/Expenses), but I'm assuming you don't need to split out the rent received.

 

If the owner collected a Security Deposit (e.g. 1st & last month for damages, etc.) then you also want to create a Liability Acct to show that deposit.  It is not Income and is not really the owner's money.  It is a deposit that in theory should go back to the renter - assuming nothing happened that the lease allows you to deduct money from the Security Deposit. 

 

And if this truly is "Biz #2" with it's own Tax ID, then you're also going to need to set up accounts to show the payments to the owner.  And again...  A question for how the Tax Accountant wants to show them to work with the other tax returns. 

 

Then there's the question of Expenses.  My guess is that all the expenses will just go through the original business (utilities, rent or mortgage payments (if any), your time, etc.).  But again...   There's another Tax Account question...

 

 

 

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