April 15th. (Insert yawn and/or low grumble here)
We love to hate it. It’s the dreaded American tax day and it’s knocking on our doors! Before you know it, it will have come and gone for another year – it’s just over 4 weeks away. Are you ready?
If you haven’t filed yet (if you have, good for you, early bird!), we’ve got a few tips to help you, hopefully, get the best return or lowest payout to the good ole IRS. Check out our suggestions below.
1. Keep meticulous track of expenses.
Some folks are really good about this and don’t miss a single expense. Others of us have good intentions but are sitting on a mound of receipts for which we can’t recall any details.
Make spreadsheets your friend and track every penny you spend. If you’re just starting out, consider taking the time (or hiring someone to help) you organize your receipts into one or a series of spreadsheets.
After you file your 2018 taxes next month, get started on documenting all your expenses so far from 2019 so you’ll be ahead of the game for next year. Continue with this pattern so you’ll remove the headache altogether for next time.
2. Consider what you might be able to write off that you hadn’t thought of before.
We all think long and hard about what we can “get away with” because no one wants to pay more in taxes, really. But there may be a few things lurking in your corner that you don’t realize you can take into consideration.
Here are a few ideas:
- If you’re renting only a room in your home, wrap a portion of your mortgage or rent payment into your annual expenses.
- Any and all fees collected by Airbnb, VBRO, etc. are deductible. You’re paying them out of your earnings, yes, but those are expenses you’d otherwise have in your pocket.
- Any payments you make or fees you incur for services are expenses. Turnover cleanings from your MaidThis cleaning team, the serviceman who fixed the washing machine when it broke down a few months ago, improvements you’ve made to your home or rental, an annual HVAC inspection… all of these things affect both you and your guests, so they’re free game. If it’s part of running your business and keeping your guests comfortable, add it to your expense list.
3. Be prepared to pay “self-employment” taxes.
If you’re renting out your home or a room in your home for less than 14 days a year, the IRS isn’t interested in collecting taxes on money that you’ve earned in that time. Breathe easy.
For those of us who are running a side hustle or full-fledged business with our vacation rentals, however, it’s a different story.
Regardless of whether or not you’re renting out your place or a room in your place for more than 14 days a year, first of all, keep meticulous records of check-ins and check-outs.
If you are hosting more than 14 days per year, be prepared to pay self-employment taxes, especially if you don’t have another job or means of income.
From a self-employed standpoint, a good rule of thumb is to assume you’ll need to pay about 30% of your income back towards taxes. This covers Social Security, Medicare, and other federal taxes a traditional employer would deduct for you every pay period. As a self-employed earner, that’s all on you now. A tax specialist can help you navigate the best solution for this.
To play it safe, you can cover your bases and pay… or take a chance, cross your fingers, skip it, and hope for the best.
Going it alone and filing on your own is certainly the most cost-effective way to file your taxes. However, the smartest move is to find a tax specialist that can help you specifically with Airbnb and vacation rental tax subtleties, like the friendly folks at Shared Economy Tax.
So, are you ready to file? Don’t worry too much and certainly don’t delay – April 15th will be here before you know it! Stay tuned to your inbox for tips on how to get organized for next year and avoid the tizzy.