Tax Obligation Of Airbnb Business And Ways To Streamline Taxation Process

• Reading Time: 5 Minutes
• Published: April 12, 2021
• Last Updated: February 19, 2025

Airbnb business has taken over the hospitality industry in the past few years drastically. We now get to see that lot of traveller wants to explore another city or country just like a local and hence they are not choosing to stay at a luxury hotel. Airbnb has been a game-changer. For those of you who are still unaware of the Airbnb business, you definitely must know about it. Airbnb is a platform for individuals to rent out their property as lodgings for travellers. It is a win-win situation for both host and renter – renters want an accommodation that is homely while enabling them to experience the place like a local, and the host wants to let out their unused space.

Airbnb Also Provide Other Services Like –

• Airbnb Experiences provide different experiences like cooking classes, tours, and adventures as a service offering.
• Airbnb Collections provide the renter with properties that can be used for special trips or other occasions.
• Airbnb Plus includes homestays that are highly rated and come with standard amenities.

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Talking about Airbnb and its revenue model, its major revenue comes from service fees from bookings charged to guests and hosts. There are two different service fee structures split-fee and host-only fee.

1. Split-fee: This fee structure is the most common. A service fee is deducted from the host payout, and a service fee is charged to guests. Depending on the reservation’s size, guests must pay a non-refundable service fee based on the type of listing—usually under 14.2%, while the hosts are also charged a 3% fee. Both prices are charged on subtotal, which is the nightly rate plus cleaning fee excluding Airbnb fees and taxes.

2. Host-only fee: In the host-only fee structure, the entire service fee is deducted from the host payout. Here, no Airbnb service fee is paid by guests. The fee typically from 14% to 16%. This structure is mandatory for hotels and some other hosts.

The fee for the host with a super strict cancellation policy is slightly higher than usual, and the same is for an Airbnb Plus host. As for Airbnb Experiences, a 20% service fee is charged to the host.

Tax Implication for Airbnb Host

Airbnb business now has become the main income for many hosts. However, you must be aware of the tax implication of this income. There are few situations which have different tax implication, let us understand each one of these.

Hosting for a shorter duration
When hosting your space for a shorter duration, you must know the 14-day rule.

If you rent out your space for 14 days or less in a year, you will not need to pay tax on the same.

You cannot use the property for more than 14 days per year or 10% of the days it was rented, whichever is greater if you want to treat your property as a rental property.

Why should one treat their property as a rental property? Because there are homeowner deductions and operating deduction you can claim. If you are just a renter hosting your rented space, you can only claim operating deductions

Rental or Business
You need to understand whether your Airbnb hosting activity can be classified as rental or business. This is because different taxation laws apply for these two classifications and different IRS schedule will be applicable.

Rental Income: Your Airbnb income will be rental income if you rent rooms or apartments and provide basic services, i.e., you do not offer any additional services (cooking, cleaning services, maid service etc.). In such a situation, you must report your income and expenses on Schedule E. Under Schedule E, you might be subject to Passive Activity Loss Limitations, which means that your rental deductions cannot exceed your rental income.

Business Income: Your Airbnb income will be business income if you rent rooms or apartments and provide substantial services like cooking, cleaning services, maid service etc., like how hotels or Bed and Breakfasts do. In this case, you have to report your income and expenses on Schedule C. You will be subject to self-employment tax under Schedule C.

• If you rent rooms or apartments through a partnership, S Corp., C Corp., or other business types, you will need to report your rental activities differently, such as on form 8825 or schedule 1065, 1120, 1120S, etc.
• Airbnb sends the 1099 form to the IRS, so the IRS know exactly how much money they have paid you. Make sure that you report exactly what is shown on your 1099.

How to have an efficient bookkeeping process in place to help you deal with tax woes?

Here is how you can have an efficient bookkeeping process in place to help you with your Airbnb business-

Keep Separate Bank Accounts for Airbnb Business

Opening a separate bank account that you can use only for your Airbnb business is one of the first moves. Getting two accounts might sound like more work, but it’s the opposite. You will know exactly what expenses pertain to your Airbnb business. While you can save only a few bucks every month if you use your personal bank account, but it will make tracking that more complicated during tax season. As for the extra bank account cost, you most probably will be able to offset a portion of the monthly fee as a tax deduction.

Hire a Bookkeeper

Do-it-yourself culture is all fine until and unless there are legal consequences of the same. You can try figuring out your finances and budgeting on your own but imagine the consequence of when you make an error. We understand that not everyone is a financial expert, and this exactly why you should let experts handle what they are best at. Hiring a professional bookkeeper can keep a lot of trouble at bay.
Your bookkeeper can help reduce your taxes and make more money out of it in the Airbnb business. It all comes down to tax deductions. The more deductions you make, the more you lower your taxable income.

Make use of bookkeeping software

Hiring a bookkeeper is the first step, but you’ll eventually see that keeping track of income and expenses by hand is a time-consuming method. With bookkeeping software, you will be able to manage your books and separate all receipts that relate to a specific property. Understand that tracking income isn’t just necessary for tax purposes. You require to be organized and keep insightful analytics of your business to supervise future financial decisions.

Recordkeeping is a must

Maintaining records of all transaction is one of the most basic tips to follow in the Airbnb business. Recordkeeping is important for taxation as well as for personal use, as it is useful for the time when you need a supporting document to validate any expense or income

As and when your Airbnb business grow, the complexities in the financial data will also grow. The need to have an efficient bookkeeping system in place is evident to ensure any business’s success, including your Airbnb business. Bookkeeping can be a complex task for those who are a novice in finance and that why we suggested hiring a bookkeeper. You can also contact us directly and get a team of experts bookkeeper and accountants taking care of your charts of accounts and business finances. Contact us at +(1)-214-329-9080 or email us at info@whizconsulting.net

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