Tax professional help needed!!

[James Defazio]

So this is the first year that I have not had a traditional job and w2 income to show at tax time as well we own 4 rental properties (one in which we live in one side of a duplex). We also did a short term rental on Airbnb on the other side of the place we lived in and the other properties are all rented on yearly contracts. As such I operated the entire year under the assumption that I have had in the past with properties that I just add up my expenses and income at the end of the year and my adjusted gross (usually very little if I use all my qualifying write offs) and pay the tax on the adjusted gross income.  

However, in preparation for tax time I was reading up and found that Airbnb rental income is not considered passive income and is actually considered self employment income and subject to self employment tax and that I might need to pay quarterly estimated taxes on both Airbnb income and my traditional rental properties? 

The Rental properties will make approximately 20k after write offs and Airbnb will most likely be about 15k after tax write offs. I am married with a child dependent and my wife is an employee of our business  as she does the cleaning at the Airbnb rental and we file jointly. Have I missed the boat on the quarterly payments? I had no idea if I needed to do that. Any help would be greatly appreciated. Thanks! 

[Josh Bauerle]

CPA here. 

First, you have nothing to worry about with the quarterly estimates.  Assuming you only take the standard deduction, you are going to wipe out about $25k of your $35k income with the standard deduction and personal exemptions. If you are itemizing that amount will be even higher. 

If your kid is under 17 you will get the child tax credit and if your kid is under 22 and a student you will almost definitely get the earned income credit. 

Even if you have to treat the Airbnb income as SE income you will likely owe very little in taxes which means any possible penalties for failing to pay estimates is going to be tiny, if any. 

For the Airbnb income, it mostly depends on your average rental period. If it’s less than seven days then it’s probably SE income. If it’s more than 7 and less than 30, but you are also offering hotel type services like a bed and breakfast than it’s probably SE income. In all other scenarios it’s passive income. 

Finally, absolutely do not pay your wife a salary or 1099 her.  There would be zero benefit and since the rental income is passive income you are turning income that’s not subject to social security and Medicare taxes into income that is subject to those taxes. This would be a big mistake. 

Overall nothing really to worry about here other than figuring out how the Airbnb needs to file, which is an easy determination.