You’ve decided to rent out your property on Airbnb as a side hustle or full-time. and are thrilled about the benefits it brings. However, let’s be honest, the chances are that you’re significantly less excited about paying tax on that hard-earned Airbnb revenue. Airbnb and other sites like them usually report to the IRS, so you’ll be paying income taxes if you rent out your property for more than 14 days. However, tax deductions alleviate some of that burden because they reduce your tax liability. Your taxable Airbnb income will include your earnings, minus your deductions. So to retain as much of your money as possible, you’ll want to ensure that you keep a meticulous record of all your Airbnb income and expenses. This is easy when you have an efficient process in place. Let’s examine a few options.
There are a lot of tax-deductible Airbnb expenses. Why does it matter? Well, you can offset your Airbnb income with those tax deductions. The plus side is that you’re likely paying for those expenses already. So claiming expenses is an easy way to recoup taxes owed. All you need is to keep track of what you’re allowed to claim and keep records for future reference.
Why is it important to track your Airbnb expenses and income?
It is essential to track your income and expenses from your Airbnb rental because, quite simply, it helps ensure that your business will run smoothly. After all, between all of the small expenditures like batteries, soap, cleaning supplies, condiments, and other essentials, every penny adds up to help you have more savings at the end of tax season. In addition, you and your accountant can use this information to file your taxes accurately. In the end, this puts more money back in your pocket.Six tips for recording your income and expenses
1. Open a separate bank account
One of the first steps is to open a separate bank account that you’ll use just for your Airbnb venture. It might sound like more work to have two accounts, but you’ll find that the opposite is true. When you have a separate account for your Airbnb business, you will know which expenses pertain to your business. Using your personal bank account, you might save a few bucks every month, but it’ll make tracking that much more difficult come tax season. As for the extra bank account’s expense, you’ll likely be able to offset a portion of the monthly fee as a tax deduction.2. Save your receipts
Your receipts are your first pieces of evidence for your expenditures. These help validate your deductions to the IRS, and, therefore, help lower your taxable Airbnb income. With these receipts, you can show that your expenses were for your business rather than your personal use. Be sure you also save utility, insurance, and mortgage bills if you plan to deduct those costs.3. Enlist the services of an accountant
If you list your place on rental sites and earn personal income through other means (i.e.: employment or from running another company) or have several rental properties across several platforms, make life easy for yourself and enlist the professional services of a CPA or accountant. It’s a must. An accountant is well informed of local tax laws and will be able to tell you precisely what income and expenses Airbnb hosts should keep a record of. They may even make you aware of costs you have forgotten, like office equipment, property taxes, HVAC improvements, etc. Your accountant will also advise on whether it’s worth it to incorporate or LLC your vacation rental business or keep it under your personal income declaration. You don’t necessarily need to keep the accountant on retainer year-on-year if you don’t grow your vacation rental portfolio. Get set up once, learn how to track income and expenses, and then DIY if possible. Try not to delay this process too long. It can be tempting to put it off as long as possible, but the sooner you can wrap your head around your tax situation, you’ll be able to avoid challenges that may pop up down the road. In addition, you’ll find that hiring a CPA ensures that everything is done legally and they can also provide you with peace of mind.4. Use accounting or automation software
You can solve the challenge of tracking vacation rental income and expenses with modern technology. For expenses, a simple and cheap option is QuickBooks. On top of sorting your expenses by property, another key feature perfect for vacation rental owners and managers is the ability to scan receipts with your smartphone. No more lost receipts! As for tracking income, the ideal solution is a Property Management Platform (PMP). PMPs like Hostfully make it a breeze to see which property generated how much income. And on top of that, you get all the features that will help you scale your vacation rental business like multi-channel distribution, a central calendar, integrations with other niche vacation rental software, centralized guest communications, and much more. We’ve put together a free guide for automating your accounting:Click to download (It’s free!)
3 Easy Ways to Automate your Accounting
Accounting may not be the most fun item on your to-do list but it’s a must. Now you can use this guide to evaluate the best way to streamline your accounting.5. Only use one payment processing vendor
Many vacation rental companies are now becoming independent from listing sites like Airbnb and Vrbo. Instead, they get reservations by operating their own direct booking websites. Just how popular are direct booking websites for vacation rental companies? According to our client base, more than 61% of vacation rental companies with 1-9 properties have one. That number jumps to 87% when more than 10 properties are managed. Then consider upselling products and services when the guests stay in the vacation rental. It’s a quick and easy way to make extra Airbnb income. The problem is, with a direct booking site and upsell services, you need to collect payments with a credit card processing service. Choose a reputable credit card processor like Stripe that integrates well with a vacation rental business process to monitor your income streams better. It’ll centralize all your income transactions that don’t run through Airbnb or Vrbo/HomeAway. In addition, it’ll make collecting income data that much easier. Using something like Stripe helps ensure that your guests can simply and quickly send you their payment. It will also help you manage that Airbnb revenue and keep track of necessary receipts. Payment processing companies also help prevent the loss of records or even payment errors. You’ll find that data collection on your income will be much easier too.6. Automate filing income and expenses
Keeping track of income and expenses by hand is a time-consuming process. It can be difficult to track the different revenue sources when it comes to income. Assuming you list your properties on more than just Airbnb (i.e.: Vrbo, Booking.com or your own direct booking site) you’ll have to log in to each platform and figure out which reservations brought in what payout. As for expenses, you’ll find it time-consuming to organize receipts and invoices. Will you remember which receipt relates to a specific property at the next quarterly tax filing? Remember that tracking income isn’t just crucial for tax purposes. You need to be organized and keep insightful vacation rental analytics to guide future business decisions. To make it easy to file income and expenses, check out Zapier. With this software, you can connect almost any two apps together and tell them what to do when something fits certain parameters. For the example of short-term rental income tracking, you can tell Zapier to sort all Airbnb income statement emails into one folder. Or better yet, get Zapier to take the information and input it into a Google Sheet or Excel file the minute it comes in. In addition, major property management platforms (PMPs) like Hostfully are integrated into Zapier, which opens up the possibility for other accounting automation in your vacation rental business.Which Airbnb expenses are tax-deductible?
There are a lot of tax-deductible Airbnb expenses. Why does it matter? Well, you can offset your Airbnb income with those tax deductions. The plus side is that you’re likely paying for those expenses already. So claiming expenses is an easy way to recoup taxes owed. All you need is to keep track of what you’re allowed to claim and keep records for future reference.
