Vacation Rental Accounting | Everything to Know about Airbnb Accounting

Vacation rental homes can be a great source of additional income. By owning a vacation rental business, you can own multiple properties and run the business year-round. While third-party platforms like Airbnb, Expedia, Booking.com, and TripAdvisor, have simplified the process of marketing and collecting payments, your business still needs to be managed. In addition to keeping detailed records, you'll also need to keep track of all expenses and income.

How Important is Airbnb Accounting and Bookkeeping?

Bookkeeping is an integral part of the accounting process to record financial transactions in your business. It is a fundamental component of running a vacation rental business.

A vacation rental owner won't be able to accurately manage their finances or figure out how much they've earned without a proper bookkeeping and accounting tracking system.

The management of Airbnb accounting on one or more vacation rental properties can be a challenge for many vacation rental homeowners. You may be a first-time Airbnb investor, an owner of several Airbnb businesses, or just renting out a room in your residence - whichever way, accounting and bookkeeping are vital to running a successful Airbnb.

The growth of your Airbnb business depends largely on accurate bookkeeping. Your ability to manage your business more successfully and to maintain a healthy bottom line can both benefit from keeping your Airbnb accounting in order.

To help you become a successful Airbnb host, we have compiled some of the top bookkeeping and accounting tips on this blog.

Getting Started with your Airbnb Accounting

When you have multiple properties and a high occupancy rate tracking your earnings can be a real challenge. The process can be simplified and made less stressful if you follow some basic steps.

1. Establish a Bank Account for your Airbnb Vacation Rental Business

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. Keep Track of all Airbnb Rental Expenses

Don't forget to take into account even the smallest expenses. 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 when filing. 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 in order to validate your deductions in order to save on your taxes.

Form 1099-K

Those who earn $600 or more through online selling platforms will receive Form 1099-K starting in 2022, so tracking expenses for tax deductions will become even more important.

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 major 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 clear records of personal and rental use of your vacation rental

For accurate expense tracking and compliance with reporting requirements, maintain detailed records 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 task 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 of your Vacation Rental Revenue and Expenses

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.

In order 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

Typically Airbnb hosts are not accountants, so they need software that makes renting out their homes as easy as possible. Using property management software such as Hostaway is the ideal solution for automating your accounting and financial reporting. The software offers a multitude of useful features for hosts, including expense tracking.

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.

As part of its integration with key market leaders, Hostaway provides accounting software platforms such as Ximplify, BookingTrust, and Quickbooks, which can simplify Airbnb accounting and bookkeeping. 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!

Conclusion

As mentioned previously, to ascertain how well your vacation rental business is doing, both your expenses and income need to be tracked. Tracking your Airbnb income effectively can be simplified by the use of software that automates the process, especially if you own or manage more than one property. This will allow you time to focus on improving your vacation rental earnings while the software collects information on your income and expenses.

Your Airbnb business profitability can be identified by analyzing its expenses and revenue. This will allow you to decide if your efforts are worth it or if you need to change the business strategy in the long run.

We strongly believe following the above tips can help you save time, energy, and money. This will help make running an Airbnb a worthwhile endeavor all year round, especially during tax season.

However, managing multiple rental properties can be a complex task. If you would like to learn how to simplify the process and discover more about how we can lend our expertise to help you scale your business, contact our team of experts for more information.