As an Airbnb host, you're pretty busy with taking care of your guests, responding to messages and running your Airbnb listing. Keeping track of financials and expenses is probably not your favorite activity, let alone doing filing your Airbnb taxes.
You'll find lots of Google hits for the questions “is Airbnb Schedule C or E?” or “Is My Airbnb Subject to The Self-Employment Tax?”. And yes, you do have to report your Airbnb earnings.
Doing your taxes right is vital to the health of your Airbnb business.
Plus, proper financial planning can save you a lot of money, allowing you to make the appropriate tax deductions when it's time to do your taxes. How does this work? Find out in this post.
Disclaimer: I am not a tax professional. Please consult a CPA or accountant for more information.
Filing Your Airbnb Taxes: How does it work?
Every Airbnb host will receive a 1099-K form from Airbnb. They don't withhold any taxes on your behalf, it's your responsibility to pay the taxes. That's why it's smart to reserve part of your Airbnb income each month to cover these taxes at the end of the year.
Airbnb also sends the 1099 form to the IRS, so they know exactly how much money Airbnb has paid you. Therefore, you should make sure that what you report matches what is shown on your 1099. The IRS does automated checks to see if it matches and if it doesn't you may be audited.
Rental vs Business: Schedule C or Schedule E?
Depending on how you run your Airbnb business, you have know whether your Airbnb income is Schedule C or schedule E. The distinction is based on how actively you are involved in running your Airbnb business and what services you offer.
You may be wondering what Schedule E means. According to the IRS: “Use Schedule E (Form 1040) to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs.”
Schedule E is meant for passive income. If you are just renting out a space and you do not offer any additional services (cooking, cleaning services, maid service etc.) then you should report on Schedule E.
If you do provide services, like a hotel or B&B would, then you report on Schedule C.
The main difference between these schedules is that under Schedule C you are subject to self-employment tax and under Schedule E you are most likely subject to Passive Activity Loss Limitations, which means that your rental deductions cannot exceed your rental income. In other words, the IRS assumes you're never running at a loss. If you're not, then you can deduct up to $25,000 regardless of your income.
Deductible expenses for Airbnb hosts
In order to figure out what expenses you can deduct against your income, you first need to determine whether your property is classified as a personal residence or a rental unit.
Your property is considered a personal residence if
– you rent it out less than 15 days (in which case you don't have to report any income)
– if you rent it out for more than 15 days and you use it for more than 15 days or more than 10% of the total days you rent it to others.
Are you still with me? To simplify, the vast majority of Airbnb hosts's spaces will be classified as a personal residence. This means that you can only expense the portion of expenses related to rental activities. If you own your home, you can also subtract homeowners deductions.
Things you can deduct as an Airbnb host:
– Airbnb commission
– Food & beverages for guests
– Laptop, cell phone
– Car: gas, oil, maintenance (standard car mileage)
– Home: rent, electricity, utilities, insurance
– Condo, HOA Fees
– Cleaning and trash removal
– Maintenance and repairs
For homeowners only:
– Mortgage interest
– Real Estate taxes
– Private mortgage insurance
Pro-tip: Make sure you have clear documentation of everything you deduct. For example, if you deduct phone expenses, you should have a breakdown of your phone bill. You shouldn't be doing this yourself. Personally, I think the best tool for managing Airbnb business expenses (and make sure I don't get in trouble with the taxman) is Hurdlr. It's super user-friendly and efficient to use.
Use a separate bank account for your Airbnb business
Mixing up personal and business expenses is a recipe for disaster. Open up a separate account and use it to deposit your Airbnb income and pay all expenses you incur as a host. When you need the money to cover personal expenses, you can write yourself a check from your business account. This will save you a lot of time when filing your Airbnb taxes and claiming deductions.
Special offer: Get $50 off on your tax preparation with the Shared Economy CPA.
– Listen to this podcast episode on tax advice for Airbnb hosts with Derek Davis.
Disclaimer: The information contained in this article is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial advisor or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.