As always, we try to bring useful information from industry leaders, this time our friends at sharedeconomycpa.com prepared an excellent summary regarding tax and accounting that you MUST read!
General Intro for Airbnb hosts
As the leading tax and accounting firm for Airbnb, VRBO, and Homeaway hosts, we’ve seen the space change dramatically. Countless clients who started home-sharing for fun have no moved into the professional host role, managing thousands in bookings and mastering the art of providing a first-class stay.
As space has grown, so too has the interest of tax authorities. Every week, it seems another city is imposing taxes or rules on hosts nationwide. And as local agencies are stepping up involvement, so is the IRS.
What this means is that as a host, you need to stay current with your home-sharing tax requirements. And that means local as well as federal and state. And the big secret to how you do that, in our view, is good accounting. Here is a list of our top pointers for home-sharers.
Tax Requirements
Most of us are aware that they need to file taxes annually. What many business owners don’t know is that depending on how much you make, you may be required to pay quarterly estimated taxes or face a penalty. To determine whether you will need to pay taxes, you will need to calculate your net profit throughout the year with good accounting.
Quarterly taxes are due generally on April 15 (first quarter or “Q1”), June 15 (“Q2”), September 15 (Q3), and January 15 (Q4). If you miss a quarter, don’t worry too much, you can still make payments up until Q4.
The exception to the rule above applies to taxpayers who owe less than $1,000 in tax or if you had no tax liability last year. We generally advise clients to closely monitor their accounting to ensure they’re up to date and managing tax from a cash flow perspective. You don’t want to owe the government at the end of the year on money you already happily spent.
The Best Deductions for Homesharers
Depreciating your property is a very advantageous tax deduction that can greatly reduce your taxes. Depreciating is essentially a method used to determine how much value of your property has been used up. For example, the cost of improving your property, such as a remodel, can be deducted from your taxes. However, it is very important to note that in order to depreciate your Airbnb property, you must own the property and not renting or leasing it from someone else.
Is setting up a corporation or LLC a good idea for your business?
While we aren’t lawyers and cannot give legal advice, we can say based on our experience that there are several benefits to incorporating your homesharing business. The type of entity you set up will depend heavily on your income projections, which another reason why it is that according to audit reports from the IRS, sole proprietors are audited far more than a legal entity such as an LLC.
Summary
Homesharing is a business that is becoming more and more sophisticated. As you grow, consider hiring a qualified tax professional to take care of your tax requirements, consider using tax deductions such as depreciation, and look at setting up a legal entity for your business. And most of all, keep close tabs on your numbers.
