If short-term rentals are attracting you as an extra source of income, you need to know everything about them. What most people don’t know about is taxes. Airbnb has given a new shape to tourism and people want a unique and personalized experience. If you are unaware of taxes and related issues, this article will help you to know the basics.
Airbnb allows hosts to collect taxes from guests
Airbnb allows hosts to collect taxes. Hosts can take municipal tax from guests. It’s also called a value-added tax in some cases. However, guests must be aware of the percentage of tax they need to pay before they book their place. In some areas, occupancy tax is also applicable but you need to check local laws for that. To collect tax from guests, the host needs to submit the tax ID of the company and complete tax registration information.
Taxes hosts need to pay
Short-term rentals or Airbnb specifically need to pay different taxes. Taxes vary from location to location. Here is the list of common taxes which hosts are supposed to pay.
Income tax: Income from short-term rentals falls in the tax category and needs to be filed on the income tax return. In the United States, hosts report their income on federal income tax returns.
Occupancy tax: Different states ask for occupancy tax for short-term rentals. The amount of tax varies according to location. Some states demand hosts to register with the local tax department while in other states Airbnb collects tax on behalf of hosts.
Sales tax: Hosts have to pay sales tax on the total rental income they earn. Cleaning fees and any other charges must also be included in taxes.
Report Airbnb income properly
Airbnb hosts are required to report details about their rental income on tax returns. If you hide any information and report it incorrectly, you have to pay a fine. The following tips can help you to report Airbnb income properly, in terms of tax.
Keep a record: It’s very important to keep a record of your income. The date of the book and the amount received is crucial. Moreover, the name of the guest and the detail of any extra charges must be properly recorded.
Know about your taxes: Taxes vary from location to location. You need to get information about the taxes which apply to your location. A tax lawyer can help you to comply with local tax laws.
Use Schedule E: For the federal income tax return, you need to report rental income on Schedule E. Mention the income you earned and also enter expenses like repair or any cleaning fee paid to the cleaning company.
Subtract expenses: Hosts are allowed to deduct some taxes. It includes a mortgage of rental property, insurance, and property taxes. You can also subtract maintenance charges. However, it’s important to keep a record. Consult a professional lawyer and make sure you deduct all deductible expenses.
Comply with local tax laws
It’s vital to comply with local tax laws. Tax laws are dynamic and with changing economic conditions they also change. If you want to comply with local tax laws. The following tips can help you.
Get information: Having complete information about laws related to rental taxes is the key. Know the laws and know the taxes which apply to your location. After that know the ways to collect them and how to remit them too. A tax professional can help you through the process. Pay a little fee to a lawyer and he will help you to comply with the laws and you can save yourself from any big trouble.
The register will be a local tax agency: Laws are different in different cities and states, but in most states, you need to register with local tax authorities. They will issue a registration certificate. Sometimes you need a license or permit, to acquire that to avoid any problems in the future. If you avoid it, get ready for penalties.
Collect taxes: In most states, hosts need to collect taxes from guests and remit them to tax authorities. Airbnb can help you to collect these taxes and Airbnb can collect these taxes on your behalf.
Keep a record: Make a habit to record all income and expenses details, like rent you receive, expenses, and taxes. It will help to report income and expenses in tax returns, appropriately. It will also help to deduct all expenses and save some tax money.
Stay updated: Airbnb laws change from time to time. You need to remain updated and comply with new tax obligations. Visit the official website frequently and stay updated.
Get assistance from a professional: If you are not sure about the taxes you need to pay, get help from professionals. They can help you to file a tax return and understand complex tax laws.
Airbnb taxes: Things to consider
For Airbnb hosts, it is important to follow all tax rules. Following are some frequently asked questions, which you may find helpful.
If the host does not provide taxpayer information
If you don’t provide taxpayer information, you will not receive any payment from Airbnb. Airbnb is bound to collect taxpayer information legally. They also have to report it to the relevant tax agency. If you dint provide this information, Airbnb will hold your payment and you have to pay a fine as well. Moreover, you may have to face serious legal consequences as well.
Airbnb taxes for foreign hosts
Airbnb doesn’t charge tax from foreign hosts. Non Us residents pay taxes on their sourced income. Airbnb collects withholding tax from foreign hosts according to their tax status and country.
How tax deductions are applied?
Airbnb hosts are eligible for some tax deductions. They can deduct rental expenses, property tax, and maintenance costs. However, you need to keep a record of these expenses. Moreover, if you do not pay taxes on time, Airbnb can impose some fines.
Verdict
Information is the first step to complying with tax regulations either Airbnb taxes or local ones. You should be aware of all rental taxes applicable to you. Moreover, keeping a record of all income and expenses is vital to file your tax returns.
If you’d like to talk more about property management, or you need help with Everest Property Management, please contact us at Everest Realty.
As a top producing Realtor and Property Manager; Terry specializes in sales, extensive construction homes, rentals, REO’s, short sales, and all aspects of Real Estate. After graduating the University of Michigan with a master in MBA, Terry continued his endeavor and now has over 15+ years of experience in the Real Estate world. If there is anything that has to do with Real Estate and sales, you can always be sure of Terry to provide important, specialized knowledge.
