Airbnb offers an attractive opportunity to generate supplementary revenue, even with a single spare room in one’s home.
With strategic planning, hosting through Airbnb can prove to be a financially rewarding endeavor.
However, it is essential for hosts to acquire a comprehensive understanding of the applicable taxes associated with hosting on Airbnb for the year 2023, to ensure complete compliance with the IRS regulations
How to Find Your Airbnb Earnings for Taxes?
You need to find your total earnings to determine how much Airbnb host taxes you need to pay.
An advantage of using Airbnb is the ability to conveniently access relevant financial information without the need to manually search through physical receipts.
This is facilitated through the user-friendly Airbnb dashboard, which provides a comprehensive transaction history section.
Within this section, the earnings history for the previous tax year is readily accessible, providing hosts with the requisite tax form information required by the US government.
Airbnb’s State Occupancy Taxes
Airbnb provides a convenient service by automatically collecting and filing state occupancy taxes on behalf of hosts.
This tax, also referred to as lodging, room, hotel, or tourist tax, is collected by Airbnb and is filed either semi-annually or quarterly.
It is important to note that while Airbnb collects taxes in most states in the US, some states do not collect occupancy taxes.
Here are some of the states that do not collect occupancy taxes:
Alaska
California
Delaware
Georgia
Hawaii
Indiana
Massachusetts
Nebraska
Nevada
New Mexico
New York
Ohio
Virginia
If your Airbnb is located in any of these states, check your Airbnb account settings. The company should not automatically deduct it from your earnings.
If Airbnb occupancy taxes were still deducted from you, file the necessary tax documents, and file a report to Airbnb.
What Airbnb Expenses are Tax-deductible?
While fulfilling your legal obligation of paying taxes as an Airbnb host, you can utilize deductibles to reduce the amount owed.
There are various expenses that can be claimed as tax deductions, albeit some may have limited or no applicability in certain situations.
The following is a brief summary of such expenses that can be claimed as tax deductions.
Also, you must prove to an auditor that these expenses were necessary for your Airbnb property. This means you need to have complete and detailed records at hand.
Host Expenses
These are expenses that you can claim as 100% deductible:
Marketing and advertising costs.
Vacation rental application costs.
3rd party commissions, including that charged by Airbnb itself.
Assorted professional fees used in your Airbnb business.
Partial, yet significant repairs on your Airbnb property.
Office stationery and supplies.
Shared Expenses
These are the expenses that the business side and personal side need to share:
Cleaning supply costs.
Professional cleaning services cost.
Utility payments.
Property insurance.
Mortgage interest payments.
Government property taxes.
Home loan interest (if applicable).
Tax preparation fees.
To ensure compliance with tax regulations and maintain a professional approach to managing your Airbnb listing, it is recommended that you diligently collect and organize all receipts for expenses related to your hosting activities.
By treating your Airbnb endeavor with the same level of diligence as any other serious business, you can properly pay the required taxes and ensure a smooth operation.
How to Calculate Shared Expenses
As the name suggests, shared expenses are those that the business and personal parts have to share. It can be quite tricky to calculate the exact amounts.
So, to help you here are some examples to help you figure out the amount of taxes for your Airbnb.
Case 1
Host A rents out their property for a total of 90 days and they live there for 360 days. The total shared expenses amount to $500.
The percentage of shared expenses that Host A can claim is:
(90/360) x 100 = 25%
This means Host A can only claim 35% of $500, which amounts to $125.
Case 2
Host B rents out only 2 rooms in their property, accounting for 20% for 90 days and lives there for 360 days. The total shared expenses amount to $500.
The percentage of shared expenses that Host B can claim is:
(90/360) x 100 = 25% of the total amount = $125
However, based on the percentage of the entire property, Host B can only charge 25% of $125, which amounts to $25.
These deductibles, although not quite as big as most people would want them to be, will add up.
If you want your business to prosper, you will need to make sure that you can save money wherever you can. And that includes the taxes for your Airbnb.
Tips to Lower Your Airbnb Taxes
Here are more ways to lower the amount of Airbnb host taxes you need to pay.
Take Advantage of the 14-Day Rule
This is the most significant tax exemption that you should be aware of if your aim is to avoid paying additional taxes altogether.
According to this rule, you are not required nor expected to report your rental income if:
You rent the property for no more than 14 days for the entire year.
You use the property for at least 14 days for the entire year.
If you meet these simple requirements, you no longer need to report your rental income to Airbnb for tax purposes. Also, you do not need to deduct rental expenses from your tax declaration.
Learn about Room Tax Exemptions
If you are just listing one room in your house for Airbnb, the same 14-day rule applies to it. So, if you only rent it for no more than 14 days for the entire year, it is not taxable.
However, note that you cannot use it to make rental expense deductions on your Airbnb host taxes either.
When the IRS Knocks, Don’t Panic!
Regardless of the 14-day rule, Airbnb must still report your short-term rental income to the IRS.
If and when Airbnb does report you, it will show in a Form 1099-K. If this happens to you, the IRS will contact you and ask why you didn’t report it.
However, you just need to prove to the IRS that you only rented out your property for 14 days or less, which will qualify you for the tax exemption.
Having the right documents on hand will keep the tax man off your back.
Always Keep Detailed Rental Records
If the IRS does decide to audit you, the process will become less stressful if you have detailed and complete records.
Even if you are just renting your property for short-term stays you should still treat it as a legit business.
Keep detailed notes of the days when you rented out the property and also of the days when you stayed there yourself.
This is to make sure you are eligible for the 14-day rule, and so you can divide the shared expenses.
Remember to Pay Your Self-Employment Tax
If you are an Airbnb host, you are essentially self-employed. You are the one in charge of bookings, marketing your rental property, providing services and amenities for your guests, and more.
So, in addition to income taxes, you should also pay self-employment taxes; this way, you won’t get into trouble with the tax man.
Takeaway
Airbnb can prove to be a highly profitable endeavor if approached strategically.
Nonetheless, it is crucial to bear in mind that, as an income generator, proper payment of Airbnb taxes for hosts in 2023 is imperative.
Failure to do so may attract penalties from the IRS.
Despite the prospect of tax payments, managing finances need not be an arduous task. Following the aforementioned tips can help reduce the financial impact to a significant extent.
Furthermore, engaging the services of an experienced accountant can offer valuable insights and assistance in navigating the complexities of tax codes.
