Tax time - do you know how to file?

Annette33
Level 10
Prescott, AZ

Tax time - do you know how to file?

image.pngI have seen various threads about occupancy taxes, and also questions about how to file the Airbnb income for tax purposes.It might be a good idea to collect all the valid and correct suggestions in a special  tax guide, just like we have the great community guide about how to reach Airbnb by Deb and Dave.
For starters I'd like to clarify that most of us US hosts should file schedule C - self employment income- with our tax return, NOT schedule E for rental income. the difference is explained in IRS publication  527, with the main criteria being that schedule C should be used by most Airbnb hosts because we provide "substantial service, such as regular cleaning, changing linens, etc.  Schedule E would be for a typical long term rental in the traditional sense, where you don't clean the tenants room, and you don't provide food or change of linens and towels, which most of us do.
Also, AIrbnb sends out 1099 forms for hosts who make over 20k a year. Not getting the 1099 form from Airbnb doesn't desolve us from our obligation to pay taxes on our Airbnb income. The 1099 form is for independent contractors, who then file their own self employement taxes under schedule C - so there ist is the other indication that schedule C is the way to go.
Just thought this might be helpful to know.....

 

9 Replies 9
Lawrene0
Level 10
Florence, Canada

Hi, @Annette33. For any Canadians looking for tax filing advice in the Airbnb Community Centre, here is a link: http://globalnews.ca/news/3278694/airbnb-3-things-you-need-to-know-at-tax-time-if-you-rent-out-your-...

thanks @Lawrene0 , that should be very helpful to Canadian citizens. What I am getting from this article is that the advice runs towards filing what would be considered schedule E , rental income,  in the US. But it is an article written by a newspaper person, not a qualified tax person/accountant.
Digging into it a bit more, I see that there is no general consensus, some advocate filing schedule E - rental income, some advocate schedule C - self employment income. it seems to be split in the middle.
Of course, people would prefer filing schedule E, because schedule C , counting as self employment income, automatically carries the self employment tax burden.  Ultimately it comes down to the fine print - and the expertise of a tax consultant. I trust mine 100% and he made me change from schedule E (which I thought was the correct one) to schedule C.
Even though one pays self employment tax on the income on schedule C now, the positive thing about it is that the declared income will count as earned income, thus be counted towards social security payouts when retired, or can be contributed to an IRA.
Just like the issues with occupancy taxes, I think all this is in flux, and at least many hosts who didn't pay taxes on their Airbnb income before are now paying income taxes it. Often enough the tax authorities themselves don't know (yet) how to handle the Airbnb filers. It will all get sorted out within the next year or so I believe. In the meantime, I'd think the IRS will just be happy to get taxes collected, and they won't stomp on someone if they filed schedule E instead of schedule C, or vice versa.
https://www.hrblock.com/pdf/Tax-Information-for-Hosts1-4-16.pdf
https://assets.airbnb.com/eyguidance/us.pdf

I like that you have created a post that has the potential to consolidate information for those filing anywhere in the world - those who look to the forum rather than to, say, google, @Annette33.

I misspent my youth as a junior accountant in a tax accountant's office. My own choice is to report Airbnb income/expenses as a business rather than a rental, and, you're right, the CRA in my case and the IRS in yours will be happy we paid tax and won't care about the actual schedule. I've met many tax inspectors, and they only get picky about the details when you are trying to hide something. The honest mistake, if it is a mistake, of filing a T4002 versus a T4036 should not result in penalties. The dishonest mistake of failing to declare surely will. 

Can we add GST to a AIRBNB reservation?---sorry Canadian question.

We need to claim GST this year as we make over $30 000, however i can't find any information on the website on how we can add a 5% tax.

CarlandDiane0
Level 10
San Marcos, TX

@Annette33, thanks for bringing this up. By now my comment is moot for most US filers because yesterday was tax filing day, but I wanted to make a quick point.

 

I carefully read the instructions and I'm pretty convinced that Schedule E is the way to go for most Airbnb hosts. This seems to be confirmed by tax filing guides I've read from both Airbnb and H&R Block. (Click on the links to download those guides.)

 

The level of services a Schedule C business would provide amounts to traditional hotel service, which generally means going in every morning to provide maid service, etc. We don't do that. I'm assuming most Airbnb hosts don't.

 

I already have a Schedule C business and I went into this year's tax prep process assuming I'd file a second Schedule C for our Airbnb business. But after reading these guides and speaking to a couple of tax advisors (including a CPA), I went with Schedule E. It seemed to work out.

 

NOTE TO AIRBNB: Send an email to all US hosts in late January with a link to your tax filing guidelines, because that guide was not easy to find through the Airbnb site.

@CarlandDiane0, yes I also saw that H&R Block recommends schedule E, and again, that's what I first had in mind. I might quiz my CPA again about this, as  I only want to  know what's "right".

However, here in my Prescott AZ local laws , they distinguish between hosts who are not on the property (and they have to jump through hoops with inspections etc...to get the permit) and those are characterized as vacation rentals.

But for hosts who are on site (like me), it's much easier to get the permit. Interestingly enough, the second group (on site) gets lumped in with the hotel people. so weird, isn't it? but I take it from there that our continued presence is construed as service, thus schedule C.

will be interesting to see how it all needs to get clarified within the next year or so.In the meantime, it probably doesn't matter too much to the IRS if hosts file schedule E or C , as long as they get their $$, but it sure would be nice to have a clear answer.

 

Dave-and-Deb0
Level 10
Edmonton, Canada

Hi @Annette33,

 

You might find this useful, especially the guide below from Ernst & Young

 

Airbnb does not send out a 1099 unless you have had hosted 200+ times AND made more than $20,000 USD in the tax year.  You can get a yearly earning summary from your transaction history or visit this link for more information: https://www.airbnb.com/help/article/416

 

This help article also has a lot of relevant information for income tax: https://www.airbnb.com/help/article/414/should-i-expect-to-receive-a-tax-form-from-airbnb

 

Finally, you can check out this excellent Airbnb General Guidance on the Taxation of Rental Income guide provided by Ernst & Young LLP: http://assets.airbnb.com/eyguidance/us.pdf

David

Superhost Ambassador ~ Host Club Community Leader ~ Community Expert ~ Experienced Co-Host

Rachael26
Level 10
Murphy, NC

@Annette33

Great article and hopefully useful to hosts. And I have no doubt it will bring out more issues and discussion.

My advisor explained that Schedule C was the correct way to go in my case - services like cleaning, food provision, advice on local amenities and the preparation of the outdoor cedar soaking tub throughout the booking - within  the main qualifier of short term rental lass than 7 days duration-.This was a key point - the duration of the stays and the main difference between hosting guests or renting out a space for weeks at a time.

Best Wishes.

 

Jude7
Level 10
Rhinebeck, NY

I have so appreciated this discussion. I was all ready to files Schedule E, never even considering any other option, until @Annette33 mentioned the alternative of a Schedule C. I carefully read all the definitions, and felt very comfortable with my decision to file a Schedule C, as a sole proprietor. 

 

Yes - I'm paying Self-Employment tax on my income, but since all of my income is from self-employment, I can actually use the boost to my income for future social security purposes. Plus - I believe that were it to be claimed as pure rental income, it would turn part of my home into a depreciated business asset, which would ultimately impact me with capital gains were I to sell my house.

 

The bottom line is that we each must do what feels right given our unique circumstances, and decisions should be defendable. I agree with a previous poster who said its most important that the income be claimed, less important where, as there will be tax consequences to every decision.

 

Thank you, @Annette33, for expanding this topic.  It was immensely important to me.

 

Jude