You’ve decided to rent out your property on Airbnb and are thrilled about growing this into a proper business. However, let’s be honest, the chances are that you’re significantly less excited about paying tax on that hard-earned vacation rental income. Everyone is required to declare income and pay taxes to local governments. There’s just no way around that. However, tax deductions alleviate some of that burden. So, in order for your Airbnb business to be successful, you’ll have to keep a meticulous record of all your Airbnb income as well as expenses. This is easy when you have an efficient process in place. Let’s examine a few options.
Five tips for recording your income and expenses
1. Open a 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 it’s actually the opposite. When you have a separate account for your Airbnb business, you will know exactly which expenses pertain to your business. If you use your personal bank account, you might save a few bucks every month. However, it’ll make tracking that much more difficult come tax season. As for the expense of the extra bank account itself, you’ll likely be able to offset a portion of the monthly fee as a tax deduction.
2. Enlist the services of an accountant
If you list your place on rental sites (in addition to Airbnb) but earn personal income through other means (i.e.: employment or from running another company), make life easy for yourself and enlist the professional services of an accountant. It’s a must. An accountant is well informed of local tax laws and will be able to tell you exactly what income and expenses Airbnb hosts should keep a record of. The accountant will also guide whether it’s worth it to incorporate or LLC your vacation rental business or keep it under your personal income declaration. Finally, 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.
3. Use accounting software
The challenge of tracking vacation rental income and expenses is solved with modern technology. For expenses, a simple and cheap option is QuickBooks. On top of sorting your expenses by property, there’s another key feature perfect for vacation rental owners and managers: scanning 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 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.
4. Only use one payment processing vendor
Many vacation rental companies are now becoming independent from listing sites like Airbnb and Vrbo. 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 there are more than 10 properties managed. Then consider upsell of products and services when the guests are staying 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. To better monitor your income streams, choose a reputable credit card processor like Stripe that integrates well with a vacation rental business process. It’ll centralize all your income transactions that don’t run through Airbnb or Vrbo/HomeAway. It’ll make collecting income data that much easier.
5. Automate filing income and expenses
Keeping track of income and expenses by hand is a time-consuming process. When it comes to income, it can be difficult to track the different revenue sources. 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. At the next quarterly tax filing, will you remember which receipt relates to a specific property? Remember that tracking income isn’t just important 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 that fits certain parameters happens. 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. Major property management platforms (PMPs) like Hostfully are integrated into Zapier which opens up the possibility for other accounting automations in your vacation rental business.
Which Airbnb expenses are tax-deductible?
There are alot 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 those are expenses you’re likely paying for 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.
1. Cleaning services and supplies
Nowadays, it’s crucial to run a clean vacation rental to get a 5-star review. Luckily, all cleaning products are expenses that can be deducted come tax time.But did you know that you can deduct cleaning services like laundry fees and turnover services? It’s all the more reason to pay a cleaning company to do the dirty work. Plus, you can setup your Airbnb pricing or implement a cleaning fee in order to cover your cleaning services expenses. Owners and hosts that use cleaning management software and apps to coordinate services can claim the subscription fees as expenses too.
2. Repairs and maintenance
A stitch in time saves nine! If you get a professional to fix that pipe or window, you can claim any repairs that you had to make to your property. If you’re a DIYer, any supplies you pick up at the hardware store can be claimed as deductions.
3. Insurance, property taxes and mortgage
When you’re renting your place to strangers, you can’t afford not to have vacation rental insurance. You worked hard to get that investment property up and running. So why risk it? Unfortunately, Airbnb insurance isn’t necessarily sufficient to keep your business completely protected. First off, the payout time is incredibly long. Second, the insurance won’t cover lost income if your vacation rental is unusable during repairs (i.e.: if a renter cause a fire). Though insurance can be costly, claiming it as a tax deduction offsets parts of the cost come year-end.
Utilities like water, electricity and internet are easy deductions, especially when you consider that these days most guests are looking for free Wi-fi. Don’t forget that subscriptions to services like Netflix, Hulu and Amazon Prime TV can also be claimed if you offer them in your vacation rental. If you’re using your personal account both at home and in the vacation rental, don’t be greedy and claim the entire subscription fee as a deduction. Claim 50%. However, check with an accountant if you can do a split claim as tax laws in your area may vary.
5. Household supplies
You will need furniture, fittings, bedding and additional accessories to run your Airbnb business successfully. Any money that you have spent on these items you can also deduct. So, welcome your guests with a bottle of bubbly and some snacks. You can deduct those expenses from your income. The added benefit is that a good vacation rental welcome pack is also a good way to score a 5-star review.
Any business requires marketing. When you pay for marketing, you will be able to boost your income by attracting more visitors. Plus, you will then be able to pay less tax as any marketing cost is tax deductible. This is clearly a win-win situation.
7. Professional services
Here is another win-win situation. When you enlist the services of an accountant, he/she will ensure that you deduct all the expenses that you can . That also includes the accountant’s fee. The same goes for other services like photography, website building and online marketing. Even expenses like paid ads to your direct booking website can be claimed as tax deductions.
8. Vacation rental software
If you use vacation rental software like a Property Management Platform (PMP), dynamic pricing, cleaning management, or home automation, you can claim any of the subscription fees as expenses. That makes getting such software a much more appealing proposition when you consider the income-boosting or time-saving benefits they bring to the table.