You’re excited about growing your Airbnb business but not so fast. You probably know that you’ll probably have to pay federal and state income tax on your Airbnb income. In addition, rental services like Airbnb ordinarily report to the IRS so you’ll need to make sure that you’re accurately tracking your Airbnb income and expenses.
In order to ensure that your taxes are paid on-time, you need to put a process in place that works effectively. Here are 4 tips to help you track your Airbnb income and deductible expenses along with some examples of items that you can deduct from your Airbnb income to lower your taxes.
Keep a Separate Bank Account for Your Airbnb Business
Trying to figure out what you spent on your Airbnb business versus your personal expenses is next to impossible when all of these items are commingled in the same account. Instead, you should open a separate bank account for your Airbnb business so that your business finances are separate.
The IRS requires that you provide proof of a deduction in order to claim it on your taxes. Knowing which receipts to save can help you minimize the amount of paperwork that you have to save each year for tax time. In general, it is a good idea to save all sales receipts related to purchases that you’ve made for your Airbnb business. In addition, you should also keep all utility, insurance, and mortgage bills if you plan to deduct those costs, as well.
If you rent out your property on multiple vacation rental platforms or you have multiple properties, don’t attempt to figure out your finances on your own. Find a CPA or an accountant to help you get a better idea of what Airbnb hosts should keep track of.
It is a good idea to get started with this as early as possible, even before you start to bring in Airbnb income for the year so that you can get ahead of any potential challenges with tracking your Airbnb income and deductible expenses.
If keeping up with your receipts and bank statements sounds like a huge hassle, automate your Airbnb finances with a software. Instead of manually entering transactions, use accounting software that will link to your bank and Airbnb account. By ensuring that you are tracking all of your business expenses and revenue, you’ll have a much better chance of making sure that you catch all of your deductions and pay your taxes on time.
When it comes to deductions, make sure that you meet IRS requirements for rental properties. First, you must rent out your property for at least 14 days. If you rent out your home for less than 14 days out of the year, the IRS will consider your vacation rental property as a second home and these deductions won’t apply.
Once you’ve confirmed that you are entitled to rental property deductions, here are the expenses for your Airbnb business that you should consider deducting:
You can deduct any repairs that you need to make to your property, such as fixing a leaky sink or a roof repair. Cleaning services for your rental property are also deductible expenses.
The cost of insurance for your property can be extremely expensive, especially if you have to ensure your property against natural disasters. Make sure to save your bills for liability insurance and include them in your deductions at tax time.
The cost of utilities for your property, including electricity, water, and the internet are also deductible expenses. Once you throw in the local taxes that you have to pay on your property, these deductions can be worth a lot each year.
Hiring an accountant or lawyer to help you manage your Airbnb business certainly adds up. However, these professionals are important for helping to ensure that you stay out of legal and tax trouble and you can deduct the fees that you pay them. A professional accountant can also help you find those deductions for Airbnb hosts that would otherwise be overlooked.
If your property isn’t located in an area that receives a lot of tourists, it’s likely that you’ll want to do some marketing and advertising for your property in order to increase your Airbnb income. Fortunately, the money that you put towards these activities is completely tax-deductible. Consider paying advertising and marketing fees upfront for the next year and you’ll get a 20-25% discount while also landing yourself a nice tax deduction.
Supplies, such as cleaning supplies, snacks for guests, bedding, and furnishings are all required for running an Airbnb business. So make sure to deduct any costs that you spend on these supplies for your Airbnb guests.