Thousands of people consider joining the short-term rental market and making their property available for travellers from all around the world. But, very few actually acknowledge the venture as a legitimate business – which it is. Instead, they believe it’s just supplemental income which will stream into their bank accounts unregulated.
Yes, of course, Airbnb can be a lucrative additional income source, but it must be treated and run like an actual business. Not only will that empower you to become successful on the platform, but it will also save you from financial issues later on down the line. What do we mean by that? Well, as it’s a form of income, it will be subject to tax depending on the region where you reside.
Now, when most Airbnb hosts discover the tax situation, their first thought is,
How much tax would I pay on my Airbnb income?
Well, that’s exactly what this article will discuss. If you can calculate your tax accurately, you’ll enable your Airbnb business to flourish without any serious obstacles.
So, when it comes to calculating the amount of tax you pay on your Airbnb income, it’s important to bear in mind the expenses that you can deduct. That means there are certain elements which are exempt from tax, as long as you can prove that they are actual expenses. For instance, the 3% Airbnb fee, utilities, rent and other guest accessories can be included in expenses.
As long as you retain the receipts from all of your expenses, you’ll be able to prove it to the tax authorities if needs be. Once you’ve subtracted those from your Airbnb, you’ll be left with a figure that you can use to work out how much tax you’ll pay.
How it works…
In the majority of cases, your Airbnb income won’t be taxed separately from your main income, but rather combined with it. That means the amount of tax you pay will be heavily dependent on how much alternative income you rack up throughout the year. Your Airbnb income is added to your other income to determine one overall figure, and then you’ll be placed within a tax bracket.
Let’s say you have another job as your other income source. If you make $30,000 from that job, and another $1,000 from Airbnb, your combined figure will be $31,000. After the standard deductions and personal allowance based on your area – probably around $10,000 – you could be left with a taxable income of $21,000.
Airbnb provide a wonderful service, and part of that service is dealing with occupancy tax on hosts’ behalf. There are dozens of countries and areas that qualify for that service, which means Airbnb calculate the tax and submit it to the tax authorities for you, so you don’t have to worry about it. That feature is called “collect and remit”.
Things to remember…
Here are 3 things which you must not forget when it comes to Airbnb tax…
- 14-day rule – In a lot of areas, there’s a 14-day rule, which means if you rent out your property for less than 14 days in a calendar and use it as a personal property for more than 14 days in a year, you won’t have to pay tax on that income.
- File records – Whether it’s keeping track of all your business expenses or recording all of your rental periods, it’s important that you safely store files. Not only will that help you keep on top of your finances and ensure you’re being taxed correctly, but it will make life easy if tax authorities ever ask for documentation.
- Seek advice – If you find yourself overwhelmed and still struggling to understand your tax situation, then you can always receive guidance and information from an expert financial advisor.