Tax season is a busy time for our Chicago Airbnb management team. Each year as we prepare for taxes, we try to make things easier and more efficient. Here are a few tax tips for your Airbnb business. With a mix of pre-tax and post-tax prep, you’ll be ready for April every year.
Some Airbnb business owners hire a professional to prepare their taxes. Others rely on a member of their Airbnb management team. Whichever you choose, it’s important to know what’s going on with the books. Afterall, should anything go wrong, it’s on you.
Luckily, there are great resources that provide just enough educational tools to understand the tax process without being overwhelmed. At the request of Airbnb, Earnest and Young LLP develop an in-depth guide titles Airbnb General Guidance on the Taxation of Rental Income. This a must for every Airbnb host. Covering everything from deducting maintenance costs to reporting rental income, it’s great to keep on hand if you’re looking to translate the tax lingo being used when filing.
LearnAirbnb has a webinar that is good to look back at. Here you can find the answers the following questions:
- Which tax deductions do you qualify for?
- Which deductions are commonly overlooked?
- Which forms should you file?
- How can you stay compliant with estimated taxes and penalties?
Airbnb Tax Deductions
A tax deduction helps reduce your tax liability. AKA you pay fewer taxes. So, how do you do this and what qualifies? An Airbnb tax deduction is incurred when there an expense was made in order to generate more income. For an Airbnb host, this may include:
- Mortgage or monthly lease payments
- Sheets, linens and other soft goods in your rental unit
- Cleaning fees you pay to a service provider
- Cost of gas to go to and from your rental unit
- Netflix/Hulu/entertainment service costs
In order to claim these deductions keep all receipts and proofs of purchase in order to reduce your risk of tax penalties.
Understand Room Exceptions
If you just rent out one room in your house, the 14-day rule applies in the same way as if you rent out your whole house. Fourteen days or less, you don’t even have to report the income on your taxes, but you cannot take any deductions either
Keep flawless records of rental periods
You’ll have a much easier time with tax issues on your short-term vacation rental if you treat it as a business from the get-go and keep meticulous records.
If you rent out your place for two weeks or less, keep careful track of both rental days and those days you used the residence yourself. If you rent for longer than the 14-day exception period, detail the dates precisely so you can properly divide out personal and business expenses, like mortgage interest.
Applicable Occupancy Taxes
Some state and local governments impose occupancy taxes on short-term rentals. These vary widely from one jurisdiction to the next, from the name of the tax—hotel tax in some states, transient lodging tax in others—to the rates and rules.
In many cases, the host is required to collect the occupancy tax directly from renters and submit the money to the tax authority. However, Airbnb does collect and submit the taxes in certain cities and states.
You have to pay self-employment taxes, as well as income taxes. Self-employment taxes cover Social Security and Medicare contributions for income you make when you are in business for yourself.
When you rent out your home, make bookings and provide amenities, like coffee or breakfast, the IRS will treat you as being self-employed in the vacation rental business.
Go ahead and anticipate a letter from the IRS. Even though Airbnb is 10 years old, it’s grown exponentially each year. This has put the IRS into minor panic and they tend to want more details than what is included in your initial filing. Don’t panic, just keep all of your documentation at hand.