Introduction
While you can make good money as an Airbnb host, running your place can cost quite a bit. Most hosts earn around $13,800 a year, but remember, a big chunk of that – between 25% and 75% – goes back into repairs, supplies, and other expenses.
In this article, we will make accounting and bookkeeping simple for Airbnb investors. By the end, you’ll know how to manage your Airbnb finances to keep more of what you earn.
6 ways to reduce your rental property taxes
Use these tax-saving tips to keep more money in your pocket.
Key Takeaways
- Using separate bank accounts with a specialized banking solution like Baselane simplifies tracking Airbnb income and expenses.
- Common Airbnb host expenses include maintenance, repairs, cleaning, utilities, and property management fees.
- Expenses deductible from Airbnb income fall into two categories: direct (specific to Airbnb operations) and indirect (related to property ownership).
- Airbnb hosts are responsible for accurately reporting income and expenses on tax returns and may use tax software like TurboTax for filing.
What is Airbnb Accounting
Simply put, Airbnb accounting is the process of recording income and expenses related to your rental property. This sounds easy enough, but getting your numbers precise can be tricky, especially when you manage multiple Airbnb rentals.
So many people raise red flags on tax returns because their financial accounting for Airbnb income is based solely on payouts received. Rental income is more than deposits into your bank account. You must also report your gross earnings (completed payouts) and allowable expenses.
These transactions should be organized into a consolidated record of accounts called a general ledger. This ledger will include all your rental income (called credits) and expenses (called debits). You have to categorize each entry, ensure the accounts balance, and turn all of this into financial statements for tax authorities.
Tracking every financial transaction is where hosts usually fall off the rails. Your Airbnb tax report will only include gross earnings, withholdings, and adjustments for using the rental site. If you don’t want to foot the tax bill on your gross rental income, you’re responsible for keeping tabs on the rest.
Common Airbnb Accounting Problems
Renting out a home, apartment, or room is a great business model to earn extra money. Listing a property on Airbnb and collecting rental income is relatively straightforward. Hosts can face problems tracking Airbnb expenses and understanding tax rules and hidden fees.
Tracking Expenses
Vacation rental owners may spend money on general maintenance, repairs, cleaning, and other things not tracked on Airbnb. This includes every repair, from a $5 lightbulb to a $500 plumbing fix, and small expenses like new linens or kitchen supplies. Keeping track of all these expenses and receipts can be cumbersome and stressful.
Tips from a Baselane User
“Many Airbnb landlords don’t know that all of your utilities are deductible while you have a guest staying there. If you are renting your apartment and listing it as an Airbnb like me, then the entire rent that you pay for that apartment during the period a guest is there is also fully deductible.”
Jake W. (Owner of 1 Airbnb apartment)
Tax Rules
Depending on where your property is, you must know how to file Airbnb taxes according to the requirements of your country, state, or city. In some areas, you could be required to register for a license or get a permit before listing your place. You may also be responsible for collecting and remitting certain taxes.
Rental Fees
Airbnb doesn’t subtract host fees in their 1099-K filings from the IRS. Depending on the structure and listing, these fees can range from 3% to 16%. Guest service fees usually fall around 14% of the booking subtotal. Inconsistent and unreported fees can complicate Airbnb bookkeeping, making it challenging for a vacation rental business to gauge its bottom line accurately.
Reservation Payouts
A payout can include multiple reservations from various listings. This situation creates an Airbnb accounting challenge for Schedule E categorization and reconciliation. Hosts must decipher which payout belongs to each property to understand Airbnb income and profit margins.
Common Airbnb Accounting Problems
Renting out a home, apartment, or room is a great business model to earn extra money. Listing a property on Airbnb and collecting rental income is relatively straightforward. Hosts can face problems tracking Airbnb expenses and understanding tax rules and hidden fees.
Tracking Expenses
Vacation rental owners may spend money on general maintenance, repairs, cleaning, and other things not tracked on Airbnb. This includes every repair, from a $5 lightbulb to a $500 plumbing fix, and small expenses like new linens or kitchen supplies. Keeping track of all these expenses and receipts can be cumbersome and stressful.
Tips from a Baselane User
“Many Airbnb landlords don’t know that all of your utilities are deductible while you have a guest staying there. If you are renting your apartment and listing it as an Airbnb like me, then the entire rent that you pay for that apartment during the period a guest is there is also fully deductible.”
Jake W. (Owner of 1 Airbnb apartment)
Tax Rules
Depending on where your property is, you must know how to file Airbnb taxes according to the requirements of your country, state, or city. In some areas, you could be required to register for a license or get a permit before listing your place. You may also be responsible for collecting and remitting certain taxes.
Rental Fees
Airbnb doesn’t subtract host fees in their 1099-K filings from the IRS. Depending on the structure and listing, these fees can range from 3% to 16%. Guest service fees usually fall around 14% of the booking subtotal. Inconsistent and unreported fees can complicate Airbnb bookkeeping, making it challenging for a vacation rental business to gauge its bottom line accurately.
Reservation Payouts
A payout can include multiple reservations from various listings. This situation creates an Airbnb accounting challenge for Schedule E categorization and reconciliation. Hosts must decipher which payout belongs to each property to understand Airbnb income and profit margins.
Airbnb Accounting Process
Most Airbnb income is subject to federal and state taxes. Deducting rental expenses is the best way to lower the income you’re taxed on. This is where Airbnb accounting becomes crucial, as it involves carefully tracking and reporting your income and expenses.
How you report rental property income and expenses will depend on the amount of space and the number of days a property is used for rental purposes.
How is Airbnb income calculated?
The money you earn from hosting is issued as a “payout.” Airbnb payouts include nightly rates, cleaning fees, and extra guest fees you’re collecting, and Airbnb automatically subtracts taxes and fees from your payout.
Rental income to report on your taxes will be your “gross earnings.” This amount is calculated based on payouts before any fees or refunds are taken out. Your reported income will be higher than your Airbnb payouts, and the difference will be made up by deducting expenses on your tax return.
Tips from a Baselane User
“Many Airbnb landlords don’t know that all of your utilities are deductible while you have a guest staying there. If you are renting your apartment and listing it as an Airbnb like me, then the entire rent that you pay for that apartment during the period a guest is there is also fully deductible.”
Jake W. (Owner of 1 Airbnb apartment)
When is Airbnb rental income reported on a tax return?
You must pay taxes on your Airbnb income if you rent your main residence (house or apartment) for more than 14 days during the year. This includes any money you receive for using the investment property and related services, like cleaning fees and maintenance.
You can rent all or part of your home for less than 14 days in a year and collect rent payments tax-free. This rule is called the “Masters Exemption.” The IRS refers to it as Section 208 (a), which allows a tax break for minimal use of a dwelling space.
What expenses can be deducted from Airbnb’s income?
Generally, expenses deducted from rental income are considered direct or indirect. Direct expenses are incurred solely to run an Airbnb. Indirect expenses are costs associated with owning a rental property.
Direct expenses:
- Service fees
- Cleaning fees
- Advertising
- Household and cleaning supplies
- Registration fees
- Repairs
- Rental software
Indirect expenses:
- Maintenance fees
- Utilities (internet, electricity, water, gas, etc.)
- Rent payments
- Mortgage interest
- Property taxes
- Renovations
- Insurance
Tips from a Baselane User
“Many Airbnb landlords don’t know that all of your utilities are deductible while you have a guest staying there. If you are renting your apartment and listing it as an Airbnb like me, then the entire rent that you pay for that apartment during the period a guest is there is also fully deductible.”
Jake W. (Owner of 1 Airbnb apartment)
Every dollar you spend is a dollar you don’t have to pay on your rental income. Tracking rental-related costs will help keep more money in your pocket. The IRS will ask for records, so make sure you keep receipts and put expenses in the right categories.
How are Airbnb expenses calculated?
Hosts can write off all or a portion of indirect expenses from rental property income. The amount depends on what part of your home is used for rental purposes and how long it’s occupied. Direct expenses are fully deductible.
Full Property: If you don’t live in the home and never use it for personal purposes, you can deduct all expenses for the days it is rented. For example, if the property is rented for 150 days, you can deduct 41% of your expenses from your rental income (150 ÷ 365 = 41%).
Shared Property: If you rent part of the space while living in the home, you can deduct a portion of the expenses for the rented days. For example, 150 sq ft out of 1,200 total sq ft is rented for 65 days. Let’s say your total expenses are $10,000. You can deduct 18% (days rented) of 12.5% (space rented) of $10,000 from your rental income (18% x $10,000 x 12.5% = $225).
What Are the Basics of Airbnb Accounting?
Making money is great, but paying taxes on your hard-earned income is significantly less exciting. Learning Airbnb accounting basics instead of hiring an accounting firm will help you keep a bigger piece of the pie.
Open a bank account
Add an Airbnb accounting payout method for a bank account just for your rental properties. This keeps your rental income separate from your personal funds. Using separate bank accounts makes it easier to record bank transactions and calculate expenses for rental and personal use.
Use a vacation rental accounting software like Baselane for unlimited bank and credit card connections.
Tips from a Baselane User
“Many Airbnb landlords don’t know that all of your utilities are deductible while you have a guest staying there. If you are renting your apartment and listing it as an Airbnb like me, then the entire rent that you pay for that apartment during the period a guest is there is also fully deductible.”
Jake W. (Owner of 1 Airbnb apartment)
Record income
Tracking rental expenses is the first step to saving money. Putting them in the right categories for each property is how you will save time when filling out tax forms. There are 15 categories for deductible expenses.
Record expenses
If you have multiple listings with check-ins on the same day, funds will usually be deposited as a single payout. This makes it difficult to determine which properties are making or losing money. Airbnb accounting lets you split your payouts by property or percentage into multiple bank accounts using routing rules.
Expense Categories
Your rental income should be a breakdown of your incoming revenue. This includes reservation payouts, cleaning fees, guest fees, damage reimbursements, and cancellation fees. Each one will be a separate line item listed under rental income.
Expense categories:
- Advertising
- Auto and travel
- Cleaning and maintenance
- Commissions
- Insurance
- Legal and other professional fees
- Property Management Company fees
- Mortgage interest
- Other interest
- Repairs
- Supplies
- Taxes
- Utilities
- Depreciation expense or depletion
- Other
If expenses exceed your income, this is considered a “loss.” Airbnb hosts typically can’t take a loss on passive income. In certain situations, a loss can be deducted from future rental income.
File taxes
Taxable rental income must be reported on Schedule C or Schedule E of Form 1040. Most Airbnb hosts will report income on a Schedule E. Real estate owners providing substantial hospitality services to guests will use Schedule C.
Airbnb will send Form 1099-K to hosts with more than 200 reservations or earn over $20,000 in a calendar year. If you don’t receive a 1099-K, it doesn’t mean you’re off the hook. You still have to report rental earnings on your income tax.
How does Airbnb collect taxes?
Airbnb automatically collects local taxes from guests when booking for rental properties in the United States, a key element in accounting for Airbnb. If you’re eligible to collect a custom tax or additional taxes, Airbnb business will collect these amounts and pay them out separately from your payout. This doesn’t change the taxes due on payouts you receive as a host.
Step-by-Step guide on filing taxes for Airbnb
In this section, add the step-by-step guide on filing taxes for Airbnb
Many new Airbnb hosts feel unsure about how to handle taxes. This guide breaks down the tax process into simple, easy-to-follow steps.
Step 1: Determine Your Tax Status
Identify if Airbnb is withholding taxes for you. This depends on whether you’ve provided them with a Form W-9.
Without a W-9, Airbnb may withhold 24-28% of your income for taxes and submit them to the IRS. Check your Airbnb Earnings Summary to see if taxes are being withheld.
Step 2: Gather Your Tax Documents
Airbnb hosts receive either a Form 1099-K or 1099-NEC, depending on their earnings and transactions. Even if you don’t receive one of these forms, you still need to report your income to the IRS.
Form 1099-K: This form is for hosts who make over $20,000 and have over 200 bookings in a year. It shows your total gross earnings from Airbnb. Gross earnings mean the total amount before any deductions like fees or refunds.
Form 1099-NEC: If you earned $600 or more from Airbnb services, like being a tour guide or offering photography, this is your form. It’s used to report income from these services, not from renting out your property.
Here are some steps to take if you didn’t receive a Form 1099 from Airbnb:
Check Your Account Information: Verify your account details on Airbnb. Sometimes, a simple error like an incorrect address can send the tax form to the wrong place.
Verify Business Status: Double-check that your Airbnb account is set up as a business. To do this, log in to airbnb.com, go to ‘Hosting Preferences’ under ‘Account Settings,’ and confirm that your hosting information is correctly categorized as a business.
Calculate Earnings: If your earnings from Airbnb were less than $600, Airbnb is not required to send you a Form 1099. However, this doesn’t exempt you from reporting your taxable income to the IRS.
Tax forms are typically sent out by January 31st, either by mail or email. If you haven’t received a 1099 Form by that date, you can still proceed with filing your taxes. However, If the income you report differs significantly from the one recorded on your 1099-K or 1099-NEC, your tax return may be flagged for review.
Step 3: Report Your Income Accurately
Regardless of whether you receive a 1099 Form, report all your Airbnb income. This includes rental income and any additional earnings through Airbnb services. You can use your ‘Earnings Summary’ on Airbnb as a reference.
Step 4: Calculate Deductible Expenses
Identify all deductible expenses related to your Airbnb hosting. Keep all receipts and documentation for these expenses.
Here’s a list of common deductible expenses you can consider:
Cleaning Fees
Maintenance and Repairs
Property Management Fees
Utilities
Property Taxes
Airbnb Service Fees
Advertising Expenses
Photographer’s Fees
Depreciation
Step 5: Check for Tax Obligations
As an Airbnb host, you are subject to self-employment taxes, which include Social Security and Medicare taxes, totaling approximately 15.3% of your Airbnb income.
On the local level, hosts should be aware of occupancy taxes, transient occupancy taxes (TOT), and local sales taxes that may apply to short-term rentals.
Airbnb may assist in collecting some of these taxes from your customers and forwarding them to the appropriate government authorities. Ultimately, the host is responsible for collecting these taxes from their guests and remitting them to their local authority.
According to the IRS 14-day rule, you are not required to report taxes on income received from rentals if:
You rent your home for no more than 14 days during the year.
You use the home yourself for 14 days or more during the year or at least 10% of the total days you rent it to others.
Step 6: Utilize Tax Software
Tax software, such as TurboTax, offers an accessible and cost-effective way for hosts to simplify the tax filing process. It is typically more affordable than hiring a tax professional.
You can complete your tax return at your own pace and from the comfort of your home, saving time and effort.
Step 7: Prepare for Quarterly Estimated Taxes
Self-employed individuals are generally required to make quarterly estimated tax payments to cover their income and self-employment taxes throughout the year.
To calculate your quarterly estimated tax payments as an Airbnb host, estimate your total tax liability for the year, often based on the previous year, and then divide this amount by four to determine each quarterly payment.
The IRS has specific due dates for these quarterly payments:
Quarter 1: Due on April 15th
Quarter 2: Due on July 15th
Quarter 3: Due on September 15th
Quarter 4: Due on January 15th of the following year
Many financial experts recommend setting aside 30-35% of your Airbnb income to cover your quarterly tax payments and annual tax liability.
Final Thoughts
Now, it’s your turn to apply these strategies to your Airbnb business. To streamline Airbnb bookkeeping and accounting, consider leveraging the power of Baselane.
With Baselane, you can access powerful features like financial reporting, expense tracking, and other essential accounting tools. Get started for free!
Say goodbye to spreadsheets
Get a consolidated ledger of all transactions categorized by property and Schedule E category.
FAQs
Most hosts pay 3%, but some pay more for Plus Airbnb listings or strict cancellation policies. Host-only structures deduct 14% to 16% from the payout. Airbnb guest service fees usually fall around 14% of the booking subtotal.
Airbnb collects and remits local taxes on behalf of hosts in certain states and cities. The system determines which taxes are applicable based on the listing address. If there isn't an option for local tax collection in your area, you are responsible for calculating, paying, and remitting taxes.
If you don't provide the correct W-9 taxpayer information, Airbnb will withhold income taxes from your payouts. The amount withheld can be up to 30%. Airbnb will send a report of income withheld. You can claim withholdings as a tax credit on your returns.
Airbnb collects and pays certain occupancy taxes for hosts in specific jurisdictions. You may still be required to collect occupancy taxes in some areas manually. This can happen if Airbnb collects regional taxes but not local taxes.
Some states require people to charge sales tax (also called lodging tax) on income earned from short-term rentals. On average, sales tax is about 12% of gross rental income. These taxes are separate from income tax collected by the IRS. Hosts are responsible for collecting and remitting sales tax to the state, city, or both.
While Quickbooks Online is great for general Airbnb accounting, it's not designed for rental property management. There is a learning curve for the setup that requires you to enter income and expenses manually. This isn't feasible for most people managing multiple rental properties and accounts. Unless you're a Quickbooks pro, you may be better off using purpose-built accounting software for property management.
Rental accounting made easy
- Consolidated ledger of all transactions
- 1-Click Schedule E categorization
- Auto-generated financial and tax reports
