…some states don’t require you to pay these taxes if your guests are residents of the same state…
If you find yourself amongst the 200,000 or so AirBnB hosts in the US, you might be wondering what kind of tax implications your entrepreneurial self might run into. The first thing you should know is that services like AirBnB and HomeAway are required to report your earnings over $20,000 to the IRS via form 1099-K. Therefore, it’s imperative that you report this income on your tax return. Failure to do so could result in penalties and interest on top of any taxes that you might owe.
You should also know that hotels have felt the impact of services like AirBnB and FlipKey, and they haven’t liked it one bit. As a matter of fact, they’ve lobbied local governments, saying that they’re unfairly burdened by having to pay occupancy taxes (which are based on the number of nights that a guest stays at the hotel and are passed on to their guests) while hosts usually skip past that tax. Local governments have found themselves trying to find ways to make sure that hosts pay these taxes as well.
Because these laws vary from state to state, county to county, city to city and municipality to municipality, and the fact that they can change from year to year; and payment intervals can range from monthly to quarterly to annually; and some governing bodies charge a percentage of gross collections while others collect a flat fee per night, it would be a massive undertaking for services such as AirBnB or Flipkey to keep track of this for their hosts. And to AirBnB’s credit, they’ve started to keep track of it for hosts in some of the more popular guest destinations. Thus, the responsibility of keeping track of these taxes may fall squarely on your shoulders. The first step is to determine if your home-sharing service will track these taxes for you.
1. Raise your rate to help offset the cost
Once you’ve determined the rates that are applicable in your geographic location(s), you can raise your rates to offset the cost of the occupancy tax. You may or may not be able to do this depending on the competition in the area.
2. Keep track of the taxes you owe — Create a spreadsheet
One best practice is to create a spreadsheet that lists all the applicable occupancy taxes. Be specific, don’t aggregate them and then multiply by the number of nights that your property was occupied for or the total amount you collected. Instead, break out the taxes by each governing body: state, county, city, municipality, then multiply the number of nights by each rate. Keep in mind that you may be making payments to different governing bodies. Remember, you don’t need to keep track of how much you collected or how many nights your property was occupied for, your home-sharing service can easily provide this information.
As far as finding the applicable rates, your state’s department of revenue should have a list of the rates. You should also know, that some states don’t require you to pay these taxes if your guests are residents of the same state where your property is located.
3. Don’t forget! — Set a reminder on your phone… for the rest of your life
Another best practice is to set reminders for the due dates of these taxes. It’s very easy to forget about these dates, and the last thing you want is to pay more than you should.
4. Get help — It’s easier than ever!
Finally, you’re not alone. keep in mind that there are professionals out there that make it their business to help people such as yourself with these situations, and finding them can be as easy as searching google or downloading an app. As a matter of fact, Taxfyle has a network of over 500 CPAs, some of which have dealt with occupancy taxes in various jurisdictions, and what’s more, they’re waiting to help you!
Ralph Carnicer CPA, ping-pong table owner, beard connoisseur, powerpoint jedi.
