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Airbnb opened a vibrant short-term rental economy across the world. Today, almost every city, town and village will have Airbnb rentals. The cheaper alternative to hotels’ accommodation was the main reason why the app grew so popular.
Recently however, Airbnb rental taxes have increasingly become a challenge to investors. Many hosts have gotten into problems with the taxman. The problem is that most rental owners don’t bother to pay tax from their Airbnb incomes. Others don’t know how to file these taxes.
So how can you sort out your tax issues? Here are 7 things you need to know about Airbnb and taxes:
1. Airbnb Is Not Responsible
One mistake that homeowners make is thinking that Airbnb is responsible for reporting their taxes. The app does not handle the app users’ tax issues. What they get from you is just a commission of the charged amount, and that’s it. They also don’t offer any tax information because the app is used in hundreds of tax jurisdictions. You need to sort out tax issues on your own.
2. Accountancy Firms Can Help
The main reason why most people don’t pay tax is a lack of information. Many tax laws are too complex for common people to understand. If you have been having problems paying Airbnb tax, consider hiring an accountancy firm. We use Infinit Accounting’s insurance accounting outsourcing services for this kind of work. They are professionals who can help us manage all our tax issues. They know how the tax is deducted in each jurisdiction and how much is needed to pay. A good accountancy firm will find legal ways to reduce the amount of tax payable.
3. Get to Know Your Country’s Tax Laws
Every country has its own tax laws. The law governing New Zealand taxes is not the same as law in Australia or the USA. So, to be tax compliant, check the tax law regarding digital income tax. In some countries, this law is not clear, and this is what allowed many Airbnb owners make huge profits in the early days of the app. You might be able to take advantage of such loopholes to pay less tax or avoid paying at all, but you want to make sure you won’t get into trouble later for breaking the law.
4. Timing Is Everything
Apart from checking how much and how to pay tax on your Airbnb, payment time is also an important factor. Some jurisdictions require paying such taxes annually. But there are cases where these taxes are required to be paid quarterly. To avoid getting into trouble with the taxman, check the recommended payment period. Avoid late tax filings as these might attract heavy penalties.
5. Keep Rental Records
One of the biggest mistakes that homeowners make is failing to keep rental records. If you want to have an easy time with the taxman, make sure your Airbnb records are flawless. Have everything detail recorded from the rental time and the amount paid. Be able to proof of the income, including for bank and digital payments. Even if you only rented your place for two weeks one time or even shorter periods several times a year, have these records intact. This will make tax filing verification much easier.
6. Document All Business Expenses
One thing you must always do is documenting your business expenses. This is something most people forget and end up paying for by not claiming deductions. In most jurisdictions, the amount of payable tax is reduced by expenses. If you have done home improvement, renovations, or repairs, these expenses can often reduce your net payable tax. You must however, show proof of these expenses for them to be considered. Keep your expenses records clean.
7. Go for Tax Relief
In most jurisdictions, there are tax relief laws. Before you pay your tax, you need to know if you qualify for tax relief. Several factors can qualify you for tax relief. They including age, disability, and the kind of business. So, depending on your tax laws, you need to check if you qualify for tax relief. This is a clever way to become tax compliant and still make large profits.
Filing for Airbnb tax is crucial to avoid problems with taxman in most jurisdictions. Like most other revenue source, Airbnb rental returns are considered income. Getting to know what is possible in your location under the local laws is important to running a successful and legal operation.
Now that you’ve learned all about Airbnb and your taxes, definitely check out our article on Airbnb legalities in Queensland.