Passing rental expenses through to the landlord

[Robert Silvernagel]

Hi biggerpockets community! I come to you seeking sage advice yet again. 

So here's my situation. I'm currently handling all management of a friend's downtown Seattle condo via Airbnb while he's living abroad. Things have been going really well, and he's asked if I would help him convert a second unit into an Airbnb from a long-term lease. Since there is significant upside for both him and myself, I willingly obliged and am happy to help with minor repairs and spend the time and money to furnish the unit in preparation for our first guests.

My question for you is what is the best way to handle the expenses associated with all of the costs needed to get the unit ready for Airbnb? We are planning to put up a coat of new paint as well as oversee contractors to replace the worn out carpet (has to be done, it was destroyed by the last tenant). The owner is overseas and so he was hoping that we could take on these expenses ourselves, itemize all expenses associated with preparing the unit, and then deduct those from his future payouts. We are currently handling the airbnb payout directly, and then plan to pay him his 80% cut after our management fee (and all associated expenses) have been accounted for. Can we do this without being a LLC or other business entity? The thought was that we should be able to cut him a 1099 at the end of the year for the revenue he will be bringing in, but neither my wife (an accountant by trade) or myself (software developer) have had experience with this before and don't want to get stuck not being able to expense all of these costs.

Please advise, and thanks in advance!

Rob