Are you a frequent traveler? Expensive hotel accommodations aren’t the best option especially if you’re watching your budget. The common solution? Airbnb hosts (among others alike).
Well, for the hosts, it’s one of the easiest ways to make and/or earn extra income. The platform provides a good opportunity for both travelers and hosts: having to rent out a spare room or unit without the long-term commitment.
The concept is advantageous for hosts as it’s an easy and no-sweat income generator on the side. It’s great especially if the hosts offer A+ service to renters. But what most Airbnb hosts don’t realize is their responsibility come tax season.
Your income is taxable. Here we’ve gathered all the basic Airbnb hosts tax-related information you need to know so you don’t have to. Here are the top things you need to keep in mind:
Deductible expenses. Before you even begin assessing which items you can deduct against your income, is your property classified as a rental unit or personal residence?
Well like most Airbnb hosts, their spaces are classified as personal residence. With this, the only expenses you’re free to deduct are those of rental activities as well as homeowners deductions.
For homeowners, depreciation, mortgage interest, real estate taxes and private mortgage insurance.
Ensure that you consult with a credible and liable tax advisor for further details and more information regarding the subject. There are a handful of rules in this area and an expert will be of great help to you. Also, make sure that you have a clear documentation of everything.
Track your expenses. Hosts are often very busy and unorganized, not all of them but at least there are a few. One of the biggest conundrums hosts encounter comes tax time is they don’t have a document of what comes in and out.
Automate. Yes, it’s important to keep your receipt at hand in your storage box but it’s easier to automate processes so you can track every expense. There are certain apps for keeping your finances well-documented.
Probably the easiest way is to link it with your bank and credit card accounts, of course it’s will be less messy if you open an account specifically for business transactions. This will provide you a summarization of your rental activity monthly. This way, you can manage your finances seamlessly.
File your Airbnb taxes. So, how does this exactly work? Each and every Airbnb host will receive a 1099-K form from Airbnb. It’s your responsibility and due diligence to pay the taxes yourself so the platform won’t withhold any on your behalf.
If you think you can simply escape paying your taxes, you thought wrong. Airbnb send the 1099-K form to the IRS so they have full knowledge of how much Airbnb pays you. Given this, there can be no way you can curve the numbers so make sure that your report matches with your 1099 record.
In addition, the IRS carries out automated checks to determine if it matches and if they find out it doesn’t you’ll be audited for that. It’s important to keep a chunk of amount from your Airbnb income to cover your taxes comes tax season.
Anything more to add or share? Leave a comment below!
About Chie Suarez
Chie is a daytime writer for Depreciator – Tax Depreciation Schedule, a company dedicated completely to Tax Depreciation Schedules that aids the Australian property market.