Did you know that Rental Income was Earned Income?
Neither did we and if you ask your accounting professional, they might say other wise – PLEASE CONSULT with your ACCOUNTING PROFESSIONAL. The City of Kansas City Missouri has a new guide and it tell us the following, items in grey come from their guide.
Rental income is subject to the earnings tax to the extent that the rental, ownership, management, or operation of the property from which the income is derived constitutes a business activity of the taxpayer in whole or in part. Factors to consider that determine taxability of the activity include:
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- A legal entity was created to hold (or manage) the property.
- The income is generated from activity in the regular course of the taxpayer’s trade or business; for example, a real estate business.
Other factors that may be used to determine whether the income is the result of a business activity or “hands-off” in nature include:
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- The amount of personal involvement by the taxpayer, including the taxpayer’s employees or agents. This includes the extent to which the taxpayer participates in management decisions, such as advertising a property, vetting or approving tenants, deciding on rental terms, approving expenditures, and similar decisions.
- The frequency and number of transactions that produced the income.
- The amount of time and attention the taxpayer devotes to rental operations during the year.
- The proportion of the income relative to the taxpayer’s other earnings or income.
Additional tax considerations:
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- All net profits from rental real estate business activities of a sole proprietor who is a resident of Kansas City, Missouri, are subject to tax, regardless of the location of the property or properties.
- Net profits from rental real estate business activities of a sole proprietor who is not a resident of Kansas City, Missouri, are subject to tax based only on activity in Kansas City, Missouri. Complete Schedule Y of Form RD-108B to determine the amount of net profits subject to tax.
So while you will not qualify your rental as a trade or business in an effort to get some of the specialized accellerated depreciation in section 179 of the tax code, you now qualify per Kansas City Missouri and need to fight with their Quick Tax nightmare of a system to pay them 1% on your rental income – maybe, probably, not sure, ask your tax advisor, they won’t know either.
So in addition to registering your rental with Healthy Homes, you also need to have a license to do business in Kansas City Missouri – maybe two t
Getting Started
Rental businesses must be registered and licensed to do business in Kansas City, Missouri. The first step is to submit a Registration Application (Form RD-100).
Form RD-100 can be submitted electronically on Quick Tax or in person to the City’s Business License Office at City Hall, 1st floor, 414 E. 12th St., Kansas City, Missouri 64106. Commercial properties must obtain a Zoning Clearance. Residential properties must be registered through the Health Department’s Healthy Homes Program.
Once the application is processed, the appropriate tax accounts will be created and you will receive a notice listing your account numbers to reference on returns you file and when communicating with the Revenue Division.
(RD- 100 is a REgistration Application to Add New or Update Exisiting Accounts)
Profits Tax on Form RD 108/ 108B
Form RD-108/ 108B is a tax return filed annually and is used to pay the 1% earnings tax on the net profits of a business. The return is due by April 15 of each year and is required even if there is a loss. If you file income taxes on a fiscal year basis, the return is due 105 days from the end of your fiscal year.
Extensions of time to file may be requested by submitting Form RD-111. Extension requests are granted to provide an additional six months to file. They are not an extension of time to pay the tax due. A payment of at least 90% of the tax due must be submitted with Form RD-111 to avoid penalty and interest. This request is separate from an extension request submitted to the IRS for federal income tax purposes and should be sent directly to the Revenue Division. The IRS does not send this information to municipalities.
Some Examples from the City Website
Not sure if you need to pay 1% you have to see the examples on the city website
1. You rent out a house you used to live in, after purchasing a new house. Have a full time job and own said house in your own name. They say not a business, so no tax.
2. You buy and fix up old properties and sometime keep one and rent it out. You manage it yourself. Your rental is a business, you owe tax.
3. You own a 200 unit apartment building. You have it managed while you work a day job doing something else. Your rental is not a business, you do not owe tax.
4. You form an LLC to own a 4 plex. You have it managed but have the final say on the tenants. Because its in an LLC and the income of the LLC is only the rental, it is a business. You owe tax.
5. All net profits from a rental business activities of a sole proprietor who lives in Kansas city Missouri is subject to tax on the properties, even if the properties are in another state or country.
6. Net profits from a rental business of a sole proprietor who does not live in kansas City Missouri are subject to tax only on the proproperties located in Kansas City Missouri . . . wow, glad if I live and own rental property in Topeka Kansas I would not have to pay Kansas City Missouri any tax on it.
Earnings WithholdingTax
Don’t forget that Employers are required to deduct the earnings tax on wages and salaries paid to residents of Kansas City, Missouri and non-residents performing services within Kansas City, Missouri city limits.
So if you live in Kansas City Missouri, they are owed 1% of your income. And if you live outside of Kansas City Missouri but are working and earning money in Kansas City Missouri, then they are owed 1% of your income as well.
So landlords if you hire an employee from Overland Park and they do work on one of your houses on your dime and it is located in Kansas City Missouri – account for that particular time because Kansas City wants 1% of that income paid to your employee.
PLEASE CONSULT WITH YOUR TAX ADVISOR
Business License Take Two
A business license is required in instances where the owner is active in the management of the rental property. If the owner employs a management company, then the management company is required to obtain the business license – not the property owner.
To obtain a license, new businesses are required to file Form RD-105 no more than 60 days after opening in Kansas City, Missouri. A business license must be renewed each year by filing Form RD-105 prior to March 1. The cost of a license is determined by the amount of gross receipts from the prior calendar year using rate Table A included with the form.
Tips
- Gross receipts include payments received for use or occupancy of property; lease cancellation payments, advance rent, expenses paid by a renter in lieu of rent, the value of property or services provided in lieu of rent; and any other charges or fees earned in the regular course of business.
- Short-term rentals with less than eight bedrooms are subject to business licensing similar to traditional rentals greater than 30 days.
- Businesses with more than eight bedrooms for rent are considered hotels and are subject to both the Convention and Tourism Tax and Arena Fee (see the Tax Guide for Hotels for more information).
