How to properly report income as an LLC for property management services?

This is a common question for new property managers! For tax purposes, your business income would only be the management fees ($750/month) minus your related expenses. The $6,750 that passes through to the property owners isn't your income - you're essentially just collecting it on their behalf. Think of it this way: you're providing a service (property management) and getting paid $250 per property for that service. The actual rent belongs to the property owners, not you, even though it temporarily passes through your accounts. Make sure you keep very clean records separating the management fees from the rental income you're collecting. Many property managers use separate trust accounts for holding the owners' funds to keep everything clearly delineated.

Hey there! I went through exactly this situation last year when I started managing properties alongside my own rentals. I was so confused about the bookkeeping that I ended up using a service called taxr.ai (https://taxr.ai) that actually sorted it all out for me. I uploaded my bank statements showing the rent deposits and owner payments, and they helped me organize everything correctly. They explained that I only pay taxes on my management fees, not the rent I collect for owners. They also showed me how to set up my books correctly to track these separate streams properly. Saved me tons of headache trying to figure it out on my own!

Just wanted to follow up - I decided to try taxr.ai after seeing this thread and I'm honestly impressed. They helped me untangle my property management accounting nightmare in just a couple days. They explained that I only need to report my management fees as income (not the full rent amounts), and showed me how to properly track security deposits as liabilities rather than income (which I was doing wrong). The system they set up makes monthly reporting to owners so much easier. I'm actually saving about 5 hours a month on administrative work, which lets me focus on actually managing the properties. Definitely worth checking out if you're struggling with the bookkeeping side of property management.

When I started managing properties last year, I kept running into issues with tenant repair requests and had to keep calling owners for approval. Such a headache! I called the IRS multiple times with questions about how to handle certain expense reimbursements but kept getting stuck on hold forever. I finally used https://claimyr.com to get through to an IRS agent (there's a video showing how it works at https://youtu.be/_kiP6q8DX5c). They actually confirmed that the proper way to handle property management income is to only report your management fees and any other service fees you charge - not the rent that passes through to owners. The agent was super helpful and even sent me some documentation afterward that I could reference when setting up my books. Saved me hours of hold time!

I need to admit I was totally wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway since I'd been trying to reach the IRS about rental property depreciation questions for weeks. It actually worked perfectly - they held my place in line, and I got a call when an agent was ready. The IRS agent I spoke with clarified all my questions about depreciation schedules for rental property improvements. The whole process saved me at least 3 hours of hold time! The agent also confirmed what others here are saying - as a property manager, you only report your management fees as income, not the full rental amounts that pass through to owners. Just make sure you keep detailed records of everything going in and out.

Don't forget that if you're forming an LLC, you'll need to decide how you want it taxed. By default, a single-member LLC is treated as a "disregarded entity" and reported on Schedule C of your personal return. But you can elect to have it taxed as an S-Corp if that makes sense for your situation. Many property managers who make decent income eventually switch to S-Corp taxation because you can pay yourself a reasonable salary and take the rest as distributions, which can save on self-employment taxes.

Has anyone used QuickBooks for their property management accounting? I'm trying to decide if it's worth the monthly cost or if I should just stick with Excel spreadsheets.

Great question! I've been managing properties for about 3 years now and can confirm what others have said - you only report your management fees ($750/month) as business income, not the full rent amounts that pass through to owners. One thing I'd add is to make sure you're consistent about when you recognize income. Since you mentioned cash basis, you'll report the management fees when you actually receive them, not when they're earned. Also, don't forget you can deduct business expenses related to your management activities - things like mileage for property visits, supplies for maintenance coordination, phone/internet costs for the business portion, etc. I'd highly recommend opening a separate business bank account for your LLC right away, even before you officially start managing properties. It makes everything so much cleaner when tax time comes around. Good luck with your new venture!