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Vacation Rental Accounting Software: What It Is and Why You Should Use It

Vacation Rental Accounting Software: What It Is and Why You Should Use It

Renting out your vacation rental on Airbnb can be a great way to make some extra cash. But let's be honest, keeping track of all the income and expenses can feel like a chore. That's where Airbnb accounting coupled with efficient accounting software for vacation rentals and vacation rental software comes in!

Understanding Airbnb Accounting and the Role of Accounting Software for Vacation Rentals

Airbnb accounting is keeping tabs on the money stuff related to your rental property. Sounds simple, right? But here's the catch - it can get a bit tricky, especially if you're juggling multiple vacation rentals.

Many folks run into trouble with their tax returns because they're only looking at the money that hits their bank account. But, and it's a big but, your rental income is more than just what you see in your deposits. You've got to consider your gross earnings and all the expenses too.

Imagine all these financial transactions meticulously organized within accounting software for vacation rentals – essentially functioning as your general ledger. This software acts like your vacation rental property's financial diary, noting down all the money coming in (credits) and going out (debits). Each entry needs to be categorized, balanced and eventually turned into financial statements for the tax folks to make sense of it all.

Now, this is where many hosts stumble. The Airbnb tax report covers the basics - gross earnings, withholdings and adjustments from the rental site. But if you want to avoid a hefty tax bill on your total rental income, you've got to be on top of the whole financial picture.

Incorporating accounting software for vacation rentals and vacation rental software streamlines this process, enhancing and accuracy in tracking your property's financial transactions.

Why is Airbnb Accounting Important?

Alright, so why bother with all this accounting stuff? Well, here's the deal - whether you're a first-time Airbnb host or a pro managing several properties, good accounting is the backbone of a successful business.

Think of it this way – without proper bookkeeping and accounting, it's like trying to navigate a ship without a compass. You won't know how much you're earning, what you're spending and where you stand financially. It's crucial for making smart business decisions and keeping that bottom line healthy.

4 Common Mistakes to Avoid

Here's a breakdown of the common mistakes to avoid in Airbnb accounting, along with some tips to help you steer clear:

Bank Balance Blues

Thinking your bank account balance reflects your true Airbnb income is a recipe for disaster. Remember, Airbnb takes a bite out of your earnings with fees and refunds before sending you your payout. It's like looking at just one slice of the pie and ignoring the rest!

Solution: Utilize accounting software for vacation rentals to track all income and expenses related to your rental, not just the final payout. This includes things like cleaning fees, guest amenities and repairs.

Splitting Confusion

Sharing your Airbnb earnings with someone? Great! But before you split the pie, make sure you consider all the ingredients. Fees and refunds play a part too!

Solution: When splitting payouts, accounting software for vacation rentals helps factor in Airbnb fees, refunds and other deductions before dividing the pie. Don't let hidden costs create confusion later.

Reservation Rampage

Treating all your reservations as one big blob is like looking at your entire photo album as one blurry picture. You miss out on valuable insights!

Solution: Use vacation rental software to track income and expenses for each individual reservation separately. This helps you identify your most profitable listings and understand where you can improve.

1099-K Trap

Airbnb's 1099-K form can be misleading. It shows the gross amount they paid you, not your net earnings after fees and refunds. Don't be fooled!

Solution: Maintain detailed records with accounting software for vacation rentals. This will help you accurately report your earnings and avoid tax surprises.

Getting Started with Your Vacation Rental Accounting

Airbnb Accounting

1. Establish a separate bank account

For a vacation rental owner, the first step is to establish a separate bank account for their vacation rental business.

Why? Because it is difficult to keep vacation rental transactions separate from personal transactions within one bank account. Using this method, you will be able to clearly see how much Airbnb pays out and how much it costs to operate your business.

2. Track every expense

Don't forget to take into account even the smallest expenses using accounting software for vacation rentals. Every little thing adds up: A new rug, a coffee machine, a roof repair or simple amenities.

Vacation rental property owners often tend to overlook a lot of deductions because they neglect to account for all of the little expenses throughout the year. Remember, so long as your house guests can use it, it is counted as an expense and it needs to be accounted for.

Maintain a receipt file

Each expense counts if it is incurred for a service provided by your Airbnb vacation rental.

Keep receipts and record the following:

  • All purchases made for the property - such as food supplies, linen, bathroom amenities, furniture, appliances, decorative items, guest gifts, crockery, etc.
  • Your travel expenses to and from the property (when you’re doing anything related to maintaining the unit)
  • Upkeep and repairs

Pro Tip: Ensure that expenses and improvements are classified correctly within vacation rental software. The purpose of improvements is to increase the value or extend the life of the rental property, whereas expenses are meant to keep the rental property running in its current state.

Make the most of “Tax Benefits”

Saving your Airbnb receipts is also your first step towards lowering your taxable income.

A reduced tax liability can have a significant impact on your Airbnb business's profitability. It is necessary to provide proof to the IRS to validate your deductions in order to save on your taxes.

Form 1099-K

The $600 threshold for reporting payments on Form 1099-K for payment apps and online marketplaces has been delayed for tax year 2023.

However, the threshold is planned to increase to $5,000 for tax year 2024. This means more Airbnb hosts will receive this form, requiring closer attention to their income reporting.

Important pointers:

  • Receipts and records should show that your expenses were business-related and not personal.
  • Deduct all utility, insurance and mortgage bills if you plan to claim them in your taxes

You may end up with a much smaller Airbnb profit than you anticipated if you fail to do this.

There are a number of Airbnb expenses that may not be known to you that can be deducted from your tax return.

  • Rent and rental commissions
  • Professional cleaning services
  • Repairs, maintenance and purchase of tools
  • Property upgrades and refurbishment
  • Utility payments
  • Subscriptions
  • Insurance payments
  • Mortgage interest payments
  • Equipment, furnishings and supplies
  • Marketing campaigns

As Airbnb states, other factors you may consider when calculating your taxable income are whether you rent or own the space, the number of nights you host, your tax status and the total net amount that you earned (tax forms issued to you will indicate your total gross earnings).

3. Tracking intangible assets and improvements

All assets and significant upgrades should be recorded. For instance, if you need to improve the curb appeal of your property, the costs might be steep - depending on what areas are being refurbished, or upgraded. Each asset or upgrade should be accounted for individually so that your accountant can set the appropriate depreciation schedule.

A common tax savings opportunity is to set shorter depreciation schedules for various types of assets and upgrades.

Be sure to keep records of purchases such as

  • Property acquisition
  • Property aesthetic upgrades
  • Furniture
  • Landscaping

The appropriate depreciation schedule should be determined in conjunction with your accountant in order for you to minimize your tax burden and maximize the ROI of your vacation rental.

4. Maintain separate books for each vacation rental property

Expenses should be classified appropriately for every vacation rental property you own. For instance, if you own or manage 5 properties, you need to maintain separate books for each individual property separately without mixing up the revenue and expenses.

5. Maintain records of personal and rental use of your vacation rental

For accurate expense tracking and compliance with reporting requirements, maintain detailed records with assistance from vacation rental software of when your vacation rental property was used for personal purposes and when it was rented out to guests. Also, this has an impact on tax filing, so it's important to keep this in mind.

According to the IRS “If you rent a dwelling unit to others that you also use as a residence, limitations may apply to the rental expenses you can deduct.

You're considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for a number of days that’s more than the greater of

  • 14 days, or
  • 10% of the total days you rent it to others at a fair rental price.

“It's possible that you'll use more than one dwelling unit as a residence during the year. For example, if you live in your main home for 11 months, your home is a dwelling unit used as a residence. If you live in your vacation home for the other 30 days of the year, your vacation home is also a dwelling unit used as a residence unless you rent your vacation home to others at a fair rental value for 300 or more days during the year in this example.”

  • It doesn't count toward your personal use if you are doing maintenance or upgrades to the property, but you should still include that time in your log.

If you wish to maximize tax benefits from your vacation rental, we recommend consulting a certified public accountant who specializes in filing taxes for vacation rental owners.

6. Hire an accountant

It is advisable to seek professional advice if you manage several Airbnb rentals or list them on other alternative platforms.

A Certified Public Accountant (CPA) can help you determine which expenses you need to track and familiarize yourself with local tax laws. Using an accountant as an Airbnb host can alleviate some of the bookkeeping burdens, although keeping one on retainer may not be feasible for everyone, in this case, you can ask for advice.

Keep in mind that if you have a professional guide on your side, you will be able to accomplish the Accounting and Bookkeeping tasks more efficiently. When deciding on hiring an accountant, choose one who is skilled, reliable, and trustworthy. Review the credentials and references of the candidate. The benefits of hiring an accountant and utilizing their services also include assurance of timely and compliant vacation rental tax filing!

7. Automation with accounting software

A vacation rental accounting software can make it easy for Airbnb hosts to track their income, expenses and overall finances with the right vacation rental accounting software.

To scale your business and conserve time and energy on repetitive tasks, automation is essential. All property managers should invest in accounting software, which can simplify things by automating revenue and expense entries.

Automating your vacation rental accounting, has many benefits, such as

  • All financial tasks can be completed faster
  • Rapid, automatic data import and calculations
  • Access to financial data at your fingertip access from anywhere, anytime
  • Quickly gain insights for smarter decisions with analytical reports
  • Eliminates human error
  • High-efficiency thanks to better organization of workflow
  • All financial information in one place makes filing taxes easier
  • Time-saving and cost-effective

You can also link your Airbnb account and bank account when you use accounting automation software. Further, your payouts are automatically tracked, so you won't have to enter any data manually.

8. Invest in property management software

Opting for property management software like Hostaway is a game-changer for Airbnb hosts. It's not just about automation; it's about simplicity.

Among the key features Hostaway offers, one that stands out is financial reporting. With access to this feature, you can create reports instantly to access and monitor the performance of your Airbnb business.

What's even better? Hostaway integrates seamlessly with top accounting software like Ximplify, BookingTrust and Quickbooks.

By using an accounting software platform, you won't have to worry about spreadsheets or storing receipts or tracking your guest stays. Everything is automated - which can save you a ton of time!

Stay on Top, Scale Up!

Running a successful Airbnb business requires tracking both income and expenses. Consider using vacation rental software - Hostaway to automate this process, especially if you manage multiple properties.

Analyze your earnings and expenses to assess profitability and make informed business decisions. Remember, good record-keeping is key, especially during tax season.

Ready to find out how Hostaway can transform your business?

Hostaway is proud to support thousands of Property Managers and Airbnb Hosts Around the world. We take pride in being Top Ranked in Vacation Rental Software Review Sites: Capterra, G2, Software Advice, Trust Pilot, to name just a few! Check out our reviews and read the Hostaway Case Studies from real successful and growing Short-Term Rental Managers!