There are four million Airbnb hosts around the world who have welcomed over a billion guests into their homes. The house-sharing platform can be found in almost every country on the planet and with the ever-rising need for income supplementation, especially post-COVID; more and more people are using it as a source of income. However, if your property is in the United States or you are a US resident with properties located in other parts of the globe, you may be subject to US income tax.
Here are some accounting tips for Airbnb hosts.
What Does the IRS Expect from Airbnb Hosts?
In the United States, Airbnb used only to give hosts 1099 forms if a host earned more than $20,000 a year and had more than 200 transactions.
A new tax change connected to the American Rescue Plan Act of 2021 requires Airbnb to give a 1099 form to any host receiving $600 or more yearly payouts as of January 2022. Airbnb may withhold up to 30% of tax holdings if a host does not provide taxpayer information.
Airbnb income may not be taxable if you rent your home for 14 days or less during the year and use the home yourself for 14 days or more. But in such an instance you also would not be able to deduct expenses as a host. If you don’t live in the home, you can deduct all of the expenses for the property, but only for the percentage of time when you rent the property through Airbnb at a fair market value. If you use part of the property, you can only deduct the section used for rentals and just for the days, you rent it. This is an apportionment calculation a CPA can help you implement when filing your taxes.
When it comes to expense deductions for tax filing, there are two categories in which deductions can be placed: indirect and direct expenses.
Direct expenses include advertising, Airbnb fees, licenses, and local fees. Indirect expenses would be utilities, property depreciation, internet, etc. If you rent a room in your home, you can calculate the base of the room as a percentage and then deduct that part from your costs.
Differences in Bookkeeping for Airbnb by the State
Occupancy taxes are different than income taxes. They are also known as room tax, tourist tax, hotel tax, or lodging tax. This is the money you must collect from your guests and then pay to the state when you have a short-term rental.
In most states, occupancy taxes are a percentage of the cost to stay that is tacked on to the final bill. You might need to pay them to the state, the city, the county, or another local government authority. Airbnb has agreements with some jurisdictions in the United States whereby they automatically collect and pay the occupancy taxes. Airbnb could have an arrangement with your state but not your city. So they would collect state taxes, but you would be responsible for city occupational taxes. The platform clearly states in its terms and conditions, that this responsibility lies squarely on the shoulders of the host.
Many short-term rental operators will use software like QuickBooks for Airbnb to separate the occupational tax they receive from the money they earn from the rental.
Expert Advice on Short-Term Rental Taxes
Airbnb can be a lucrative business. However, as this brief summary has shown, filing, collecting, and keeping track of short-term rental taxes and eligible deductions is an incredible task. All it takes is a few mistakes and you may find yourself with severe and expensive tax liabilities.
Fusion CPA can help you simplify your short-term rental accounting and bookkeeping process. We use and can recommend the best accounting software for Airbnb. Don’t waste time thinking about keeping track of occupancy taxes for properties in multiple states. We can do that for you. Click the discovery button below to learn more about how our team of accounting experts can support you.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.