Treatment of rental application fees (tax, LLC)

Tax, Legal Issues, Contracts, Self-Directed IRA 45.7K Posts 6.9K Discussions

I'm taking applications for a property owned in an LLC. They are always in cash. Do I need to deposit this cash into the LLC bank account in order to do things the right way in terms of the LLC, or is okay to just keep the cash? (I order my credit reports, etc. on the computer with a credit card, so the cash is not used directly).

I was also wondering if I have to declare these app fees as income on my tax return, since they are going (indirectly) towards the cost of tenant screening (i.e. not profit). Thanks.

They would be taxable like rent, but you can deduct expenses against them. They don't need to go into your LLC account.

Jon Klaus, SellPropertyFast | [email protected] | 214‑929‑6545

Actually, the application fee is made by the LLC, it should be going to an account for that function, "application fees" or "other income". The expenses should be run through the company as well, credit report expense. Any difference to the good, is basically an adminstrative fee income. It is taken to income before taxes.

That is, if your honest about it.....

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Bill G.

Originally posted by Bill G.:
Actually, the application fee is made by the LLC, it should be going to an account for that function, "application fees" or "other income". The expenses should be run through the company as well, credit report expense. Any difference to the good, is basically an adminstrative fee income. It is taken to income before taxes.

That is, if your honest about it.....

Bill G.

The fees are being paid by the applicants to the LLC.

That is precisely correct. Payments get deposited to the LLC and expenses are deducted by the LLC.

-Steven

Medium hta logoSteven Hamilton II, Hamilton Tax and Accounting | [email protected] | (224) 381‑2660 | http://www.HamiltonTax.Net

OK thanks. It sounds like I don't have to deposit the application fees into the bank account. That's the main thing I was concerned about.

How do you establish the "paper trail" of how that money came in and went out if you don't deposit into the LLC and have the LLC then pay the screening cost via check or debit?

Originally posted by Steve Babiak:
How do you establish the "paper trail" of how that money came in and went out if you don't deposit into the LLC and have the LLC then pay the screening cost via check or debit?

Best to deposit it in the LLC account. Otherwise, just make the accounting entry showing cash receipt.

Jon Klaus, SellPropertyFast | [email protected] | 214‑929‑6545

Okay maybe it's better to put it in the account. Although I'm going to do it it in batches--I don't want to have to run to the bank every time I get an application fee.

All funds should always be deposited.

That is why you bank local to where you live. Allows you to deposit it in the night deposit when you leave or come home.

-Steven

Medium hta logoSteven Hamilton II, Hamilton Tax and Accounting | [email protected] | (224) 381‑2660 | http://www.HamiltonTax.Net