4 Tax Tips for Airbnb Hosts to reduce your 2015 Income Taxes

Shared Economy CPA has been lucky enough to serve some of the fastest growing Airbnb Hosts in the United States. We have several clients who are grossing well over half a million dollars per year. Now that we’re in tax season, we wanted to pass along the information that we’ve learned to help you reduce your taxes this tax season.

• The Tax Forms: If you rent your house or vacation home for over 14 days per year, you are required to report that income to the IRS. The question is, where do you report it? The question is, should you report your income on Schedule C or Schedule E? If you have an average rental period of less than 7 days, the IRS will automatically assume that you are running a business, and your income will be reported on Schedule C-subject to self-employment taxes. If you average rental period is over 7 days, but less than 30 and you perform substantial services you will also report on Schedule C. You may have noticed that your average rental period is more than 7 days, but less than 30 AND you provide substantial services- classifying your business as a bed and breakfast. But what are substantial services? Substantial services are primarily for your tenant’s convenience, such as regular cleaning, changing linens, maid services, cooking meals and the like. Substantial services does NOT mean furnishing heat and light, the cleaning of public areas and trash collection. Simply, as services a hotel would do.
• Increased Space: Another way to reduce your taxes on your Airbnb income is to increase your rental space. When preparing your tax return, you or your accountant will calculate an allocation schedule based on the square footage and days rented for all of the shared expenses. Depreciation would also apply, but under the same allocation schedule. For further reference regarding depreciation rules, see here. By increasing your space, this increases the deduction of shared expenses that you would have paid anyway (and generally not deductible otherwise). The goal is to capture all expenses to reduce your overall tax liability.
• Buy assets and invest in your home. There are a couple of clear instances where buying assets, equipment or other business investments for your business is a wise move; and spending money for your Airbnb is one of them. Airbnb can be described as falling somewhere between a hotel and couchsurfing, so good hosting means good reviews. Purchasing nicer furniture and linens for your guests will keep them coming back. Not only can you fully expense your purchases, including the amounts paid to a professional housekeeper or maid and cleaning supplies, but it can improve your occupancy rates in the long term. Keep in mind if you do hire any person to do work inside your home for your business, you may have to issue a Form 1099-misc to them at year end.
• Expense Tracking: One of the biggest problems that we hear from hosts at year end is “I haven’t kept track of my expenses”. Most people have very busy lives and keeping track of every receipt and bank statement is not a priority during the year. The best advice that we can give you is to Automate. What does this mean? Instead of keeping receipts in that shoe box, there are apps and automatic processes that can help you keep track of every expense. Some of these can even link with your bank and credit card accounts that can seamlessly manage your finances. But what do you do if you haven’t done any of these things throughout the year? Start with your Airbnb dashboard. Not only will it give you fees and other charges, but will give you a snapshot of your rental activity by month. You can then go back to your credit card statements, bank statements and even emails to help you capture all of those expenses that you paid throughout the year.

If you have questions or need guidance on how to reduce your tax liability, please feel free to book us here. We are experts in the Sharing Economy and always here to help.

Read our previous post: 4 Year-End Tax Planning Tips for Airbnb Hosts

This is a guest post by Derek Davis, Founder of Shared Economy CPA

If you would like to guest post on AirBNB Superhosting please reach out to Kelly Kampen