If you are a host on Airbnb, it’s important to remember that you may owe tax on the income that you receive. For most of the hosts, Airbnb taxes can be tricky to figure out, especially if you rent out multiple properties at a time.
Let’s face it, spending your time trying to figure out which tax regulations apply to your Airbnb business is a lot less fun than getting to know your Airbnb guests. But as the saying goes, paying taxes and death are two of life’s obligations that we all can’t escape from!
Fortunately, we have some bits of advice that can help make sorting out your Airbnb taxes easier. Here are 7 tips to help you successfully navigate and potentially reduce your Airbnb taxes.
Airbnb is required to withhold a full 28% of your rental income if you fail to provide them with a W-9 form. In most cases, your effective tax rate will be much lower than 28%, so there is no need to create a hassle which could be easily avoided.
Unless you want to deal with tax authorities holding your overpayment all year long, make sure to file your W-9 form with Airbnb. Once this form is filed, Airbnb can then give you immediate access to the maximum amount of rental income you are permitted to receive according to your tax status.
If you want to make preparing your Airbnb taxes easier, you need to have accurate records of when you rented out your property. In addition to the dates your property was rented out on the Airbnb platform, you’ll also need to keep your own records of the days that you occupied the property yourself.
In this way, you’ll be able to easily calculate which expenses qualify as personal expenses versus business expenses. These rental records will also help you to determine if you are eligible for the 14-day rule, which could potentially mean that you owe no Airbnb taxes on your property for the year. By the way, you may ease tracking your Airbnb income by simply using Airbnb software such as AirGMS.
If you use Airbnb to rent out your property, you should know about the 14-day rule. According to this rule, you are not required to pay Airbnb taxes on income generated from your short-term rental if two conditions are present.
The first condition is that you do not rent your property out for more than 14 days in a year and the second rule is that you must use your property personally for at least 14 days of the year (or 10% of the total number of days that you rent out the property to guests). Even if you only rent out a single room of your home, the 14-day rule can still be applied in the same manner as if you had rented out your entire home.
The IRS allows you to deduct business expenses related to your Airbnb business. Business expenses are a very important source of deductions for your Airbnb taxes that could save you a lot of money.
If there are any costs that you incurred, such as buying toiletries for your guest or Airbnb cleaning service fees, these costs can be deducted either partially or completely on your taxes. Some additional examples of business taxes that you can deduct include:
Another major deduction that you should not forget about is the fact that you can deduct the service fees that are charged by Airbnb on your bookings. Just make sure that you maintain all of your receipts related to any deductions that you claim. If you are ever audited by the state or the IRS, you will need to provide documented proof of your deductions.
While keeping track of your business expenses might seem time-consuming, ultimately it means less money that you’ll have to spend on Airbnb taxes. That means more profits for you and more money to invest back into your business.
Some local governments impose occupancy taxes on short-term rentals. Given that Airbnb is not exclusively responsible for helping you to manage your obligations with regard to Airbnb taxes, you may be required to remit these taxes on your own.
The regulations surrounding occupancy taxes vary greatly from one city to the next. In addition, the name of the tax itself may also vary with some cities referring to occupancy tax as hotel tax or transient lodging tax.
Find out from your local government if you are required to pay this tax and then check with Airbnb to see if Airbnb will remit this tax on your behalf. You can find a list of all of the jurisdictions in which Airbnb currently collects and remits Airbnb taxes on behalf of their hosts here.
If you offer additional services for your Airbnb business, such as meals or laundry services, the IRS may actually consider you as running a business rather than as receiving passive income as a real estate investor. In this case, you will be required to report your income and expenses as self-employment income.
If you are self-employed, you’ll also be responsible for paying self-employment taxes, in addition to income taxes. Self-employment taxes include Social Security and Medicare contributions on the income that you earned as a result of being in business for yourself as an Airbnb host.
We are all aware of the annual April 15th deadline for income taxes. However, if you are also required to pay self-employment taxes or occupancy taxes, you will need to know those filing deadlines as well. Make sure to pay your Airbnb taxes on-time so that you do not end up owing penalties and interest on your tax bill.
Airbnb understands that taxes are a necessary component of managing your Airbnb business so they have created some resources to help hosts. However, it is ultimately up to you to make sure that you pay all of the Airbnb taxes that you owe.
AirGMS and its affiliates do not provide tax, legal or accounting advice. The information contained in this article has been prepared for informational purposes only, and it is not intended to provide, nor should it serve as tax legal or accounting advice. You should consult your own tax, accounting, and legal advisors for assistance in preparing your taxes.