Best way for our 8-person co-op household to manage our money?

January 31, 2013 9:21 AM

I live in a cooperative household in California - 8 people total - and we have a house bank account that we use to pay for communal food, toilet paper, etc. as well as rent. We all deposit $ in the account, and our house treasurer writes one big check for rent that our landlord cashes. Now the local credit union wants us to pay taxes on the money going in and out of that account, which we've never encountered in the ~5-10 years the house has been running things this way. What to do?

In past situations where I've lived with lots of people in a big house, we would all write rent checks to one person and that person would write a big check to the landlord. Another person would be responsible for utilities, for the internet bill, etc. The difference with the co-op I'm living in now is that each person also pays for food that we share communally (I can't tell you how nice it is not to have 8 sets of eggs, milk, and butter all in one fridge!).

We bank with a local credit union in California. After the treasurer deposited all the individual rent checks and wrote the big one to our landlord yesterday, they called him and told him that he would be responsible for paying tax on that account, which I've never heard of. What's the best thing to do in this situation?

A couple of ideas we've been throwing around:

A) Open a new bank account with another bank (we have Wells Fargo, Chase, and B of A in our area). I opened a WF account in college when my a cappella group needed one, and all we had to do was have me and the assistant director co-sign.

B) Do the thing where one person is responsible for rent, everyone writes checks to him/her, and one big check goes to the landlord. Do the same for utilities and internet. Which would get messy when it comes time to pay for food, since a different person is responsible for house shopping every week. Have a big jar of cash in the kitchen, and everyone puts in their share of house $ each week?

Thanks for your help!

posted by wintersonata9 to Work & Money (12 answers total)

What sort of taxes are you referring to? Business taxes, income taxes, transaction taxes, interest?

For what it's worth, if the co-op's account earns interest, the interest income is taxable to somebody, so that would need to be paid by someone, depending on the how the co-op's account is created.

More importantly, this certainly does not vary depending on what bank you use.
posted by saeculorum at 9:26 AM on January 31, 2013 [3 favorites]

What type of tax?

If they're saying you need to pay tax on the interest the account generates, then yes, that's completely normal, and the bank will issue you a 1099 INT form.
posted by NotMyselfRightNow at 9:27 AM on January 31, 2013 [4 favorites]

Paypal? If you do it as a personal transfer, there are no fees paid and it is transparent who has paid who hasn't. I would personally have a shared google doc spreadsheet for bookkeeping and paypal to pay the rent.

This is how I pay my rent, FWIW, and it is great for me and my landlady, we both appreciate the convenience.
posted by arnicae at 9:28 AM on January 31, 2013 [1 favorite]

Yes, tax on savings account interest is normal, even for personal accounts.

For a whole host of reasons though, you likely do want to be either a be a formal coop or have one person as the leaseholder and in charge. Evictions and such get very difficult otherwise.
posted by susanvance at 9:52 AM on January 31, 2013 [1 favorite]

This would be tax to pay on any accrued interest. That tax amount can't be high.. Maybe a few dollars at most? And even if it were $100 (which is unimaginable), what's the big deal? Just let the account holder pay it and have everyone contribute to it.

Solution here is to request that the checking account you guys are using be a non-interest account (if possible).
posted by eas98 at 10:02 AM on January 31, 2013 [3 favorites]

Solution here is to request that the checking account you guys are using be a non-interest account (if possible).

I disagree. Solution is to pay the tax on the interest bearing account. The tax will never be higher than the interest earned. Even minimal income will help offset a bill or two.
posted by NotMyselfRightNow at 10:08 AM on January 31, 2013 [1 favorite]

Your proposed option B can be made much more straightforward, if you want to go that route. I live in a house of four, and we keep a shared spreadsheet where we track what each person pays in utilities and food for the month. Then at the end of the month, it goes something like this, in a vastly oversimplified example:

Say there are four of us and we each pay $500 in rent. This month, I paid the $100 water bill, so I put that in the spreadsheet. The spreadsheet subtracts the total amount of the bill from my rent for the month, then divides by four and adds that amount to everyone's rent, including mine. So my responsibility for the rent would be $425 ($500 - $100 + $100/4), and the other three roommates would pay $525 ($500 + $100/4). Each roommate writes a check to one person, and that person sends a check for $2000 to our landlord.

Obviously it gets more complicated when everyone has lots of contributions, but that's why you do it with a spreadsheet! I've lived in houses will all sorts of ways of splitting up expenses and different people writing out checks to everyone else, and this is by far the easiest and most hassle-free method I've ever seen.
posted by adiabat at 10:15 AM on January 31, 2013

If the account was opened by resident John Doe as "3rd street cooperative housing", such that when John leaves the house a new resident Joe Bloe can take over the acount ownership, then the credit union is seeing this as a business account, and might be wanting tax ID numbers for the business. This could be simplified if John opened the account in his own name, though you'd then have to open a new bank account every time you get a new treasurer.
I think you could file for a not-for-profit tax id number for "3rd street cooperative housing", or for a business ID, though that starts getting complicated - the whole point is that you have a large amount of money in (from residents) and a large amount of money out (to pay bills) and the net change is always zero. So there's nothing to pay tax on (net zero) but there are large gross receipts and gross expenses, so the IRS might be interested, and that could be a pain in the neck.
Your best route is to talk to the credit union and find out more clearly exactly what they meant; you can explain the situation and see if they have any suggestions.
posted by aimedwander at 11:39 AM on January 31, 2013

I live with 4 people and we use Splitwise to keep track of bills, rent, and shared expenses. It's a great new tool.
posted by chrysanthemum at 8:56 PM on January 31, 2013 [1 favorite]

I noticed something weird here - unless your landlord's name is on the account, why is the credit union contacting him at all? If he's not, then you should absolutely be asking your credit union wtf they think they're doing contacting an unrelated party and a) sharing confidential business information with him and b) demanding that he pay taxes for an account he's not associated with.
posted by i feel possessed at 4:22 AM on February 2, 2013

I noticed something weird here - unless your landlord's name is on the account, why is the credit union contacting him at all?

I think you're misunderstanding the sentence. The "him" in there is the treasurer, not the landlord.
posted by NotMyselfRightNow at 10:06 AM on March 21, 2013

Response by poster: This question ended up being a moot point because a few other factors prompted us to move out of that co-op. Sorry to anyone who was hanging on the edge of their seat about this mysterious tax issue.
posted by wintersonata9 at 7:33 AM on March 28, 2013