Whether your Airbnb business is a side hustle or a full-time venture, tracking your vacation rental income as an Airbnb host is essential to keep it running smoothly. According to the data, on average an Airbnb host can earn $924 a month.
Of course, your Airbnb income will greatly depend on your location, type of property, occupancy rate, and services you provide. It’s worth noting that any extra services that you offer to guests (e.g. bicycle rental) are also usually added to the total amount of your income.
Vacation rental services like Airbnb ordinarily report to the IRS. Therefore, if you rent your property for more than 14 days in a year, you will have to pay tax on your income. The good news is that you can reduce the amount of your tax liability by filing your deductions. Your income tax is a complicated calculation, but you can check your calculations when you need to pay tax at the end of the financial year. So, your taxable income will consist of your earnings minus your deductible expenses.
If you have multiple reservations and properties, tracking your earnings might turn into a real challenge. Continue reading to find out how you can make this process less time-consuming and stressful.
There are plenty of Airbnb calculator services on the market today which can give you a great snapshot into the viability of your small business. Whether you’re renting your entire home as a short-term rental or as a passive income, you can use an Airbnb calculator to understand how much money you could potentially make from your investment property and short-term rental.
Tracking income and potential deductions can be complicated if you have one bank account for your personal and short-term rental business finances. Instead, open a separate bank account for your Airbnb small business. This way you’ll clearly see your Airbnb payouts and business-related expenses.
Saving your receipts is the first step to lowering your taxable Airbnb income. Reduced tax liability can substantially influence the amount of profit that your Airbnb business has actually made. To save on your taxes, you will need to provide certain proof to validate your deductions to the IRS.
Your receipts and records should show that your expenses were for your business and not for your personal use. In addition, you should also keep all utility, insurance, and mortgage bills if you plan to deduct those costs too. If you fail to do this, your actual Airbnb profit (after taxes) may turn out to be much smaller than you estimated.
You might need professional advice if you manage several Airbnb rentals or have listed them on multiple platforms. Find a CPA or an accountant to help you get a better idea of what Airbnb hosts should keep track of. In addition, you should get familiar with local laws regarding taxes. No doubt, you can do it faster and easier with professional assistance.
It is a good idea to get started with this as early as possible. You will be able to avoid any challenges with tracking your Airbnb income and deductible expenses if you have everything set up in time.
If keeping up with your receipts and bank statements sounds like a huge hassle, automate your Airbnb finances with software. Instead of manually entering transactions, use accounting software that will link to your bank and Airbnb account.
For example, try using vacation rental software such as iGMS. In addition to other useful features for hosts, it can help you to stay on top of your income. You can create a financial report in no time to check the results of your business. Besides, your payouts are tracked automatically, so you won’t have to enter any data manually.
Other tools such as QuickBooks or Xero can also come in handy to simplify your Airbnb bookkeeping. Consequently, you’ll be able to stay in control of your rental income without bothering with your spreadsheets or payslips.
When it comes to deductions, make sure that you meet IRS requirements for rental properties. First, you must rent out your property for at least 14 days. If you rent out your home for fewer than 14 days in a year, the IRS will consider your rental property as a second home. In this case, you can’t deduct any expenses.
Once you’ve confirmed that you are entitled to rental investment property deductions, here are the expenses that you can deduct:
If you charge a cleaning fee to keep your property clean and tidy, don’t forget to deduct it before you pay taxes. Deductions also apply if you buy cleaning supplies for your property rental. The same is true about maintenance costs. For example, you can deduct any repairs that you need to make to your property, such as fixing a leaky sink or a roof repair.
However, it gets a bit more tricky if you charge a security deposit. In this situation, if you choose to deduct the cost of the repairs, the retained security deposit is considered taxable income.
Although Airbnb provides the Host Guarantee for vacation rental managers, many of them also choose to pay for extra property insurance. Therefore, if you have extra insurance for your property, you can deduct its cost from your taxable Airbnb income. Make sure to save your bills and include them in your deductions at tax time.
The cost of utilities for your property, including electricity, water, and the internet are also deductible expenses. Once you throw in the local taxes that you have to pay on your property, these deductions can be worth a lot each year.
Hiring an accountant or lawyer to help you manage your Airbnb business certainly adds up. If they help you solely with your home-sharing venture, their fees are also deductible. In addition, a professional accountant can also help you to find those deductions for Airbnb hosts that would otherwise be overlooked.
As the number of properties listed on Airbnb increases each day, vacation rental marketing has become of major importance. Fortunately, the money that you use for promotional activities is completely deductible.
Supplies, such as cleaning supplies, snacks for guests, bedding, and furnishings are all required for running an Airbnb business. So, make sure to deduct any costs that you spend on these supplies for your Airbnb guests.
With a tool like iGMS, you can streamline your hosting experience. The management process can be as hassle-free as looking after a timeshare vacation unit. iGMS offers several other features to automate many of your routine tasks such as:
To determine the health of your vacation rental business, you need to track not only expenses but also your income. By analyzing your rental income and expenses, you will be able to identify if your business is actually profitable. Let’s face it, your efforts should be fairly rewarded. Otherwise, you’ll have to change your business strategy to generate a reasonable profit.
To effectively track your Airbnb income, the best idea is to opt for automation tools. While they will collect information on your income and expenses, you can focus on new ideas to enhance your vacation rental earnings.
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