Derek Davis from Shared Economy, CPA was my guest at February’s class “Airbnb & Taxes.” We spoke about 1099, business deduction, and even about the new changes from Airbnb.
Because this is a hot topic, here is the disclaimer:
The information contained in this website is meant only for guidance purposes and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.
In other words, talk to your accountant or book Derek for a consultation before you go ahead and Turbo your taxes.
If you want to view the class, here is the link:
Below are some highlights from our conversation:
Defining a 1099:
- 1099 is a US tax form reported to hosts and to the IRS.
- It reflects how much income you have generated.
- It is for independent contractors, consultants, investors including Airbnb hosts.
One of the big changes from Airbnb this year is that NOT all Airbnb hosts will receive a 1099 from Airbnb; only those who met the following TWO (BOTH) requirements:
Hosts who earned over $20,000 AND who had 200 transactions.
So, if you’re waiting by the mail for your 1099 you will not get it. Unless you met BOTH requirements, no 1099 for you.
This doesn’t mean you don’t need to report the income. Say what?!
Yes, you still need to report your Airbnb income in your taxes even if you don’t receive a 1099.
There is no statute of limitation on income evasion, which means the government can come back to you at any time for not reporting your income. Remember, Al Capone didn’t go to jail for being a gangster but for tax evasion.
You can read additional Airbnb articles here:
Should I expect to receive a tax form from Airbnb?
And here is all about Al Capone.
Why this change?
By implementing a 1099 threshold, Airbnb wants to classify itself as a 1099K, which is a Payment Processor. This means they are not hiring anyone directly in their platform; they only facilitate transactions between guests and hosts.
Remember, whether or not you received a 1099, Airbnb’s 3% fee is included as part of the income you received.
The amount that should be reported for tax purposes is the gross amount (including the 3% Airbnb commission). However, hosts can also list that 3% commission as part of their expenses.
Derek and I also had a long conversation about Schedule C and E:
Schedule C means Active; Schedule E means Passive.
To determine whether you use schedule C or E, hosts can take the IRS Material Participation Test, which is a 7-point test:
Derek pointed out that more often than not his firm assign hosts to Schedule C because this is the more conservative choice. In this Schedule, the host is paying self-employment tax.
He also mentioned that a lot of hosts who classified themselves in Schedule E received letters from the IRS last year.
The next topic was Business Expenses:
Business expenses are the cost of carrying a trade or business that is usually deductible if the business is operated to make a profit. They must be ordinary and necessary for them to be deductible:
- ‘Ordinary’ means that they are common and accepted in the Airbnb hosting industry.
- ‘Necessary’ means that they are helpful and appropriate for the business.
- Examples of valid business expenses are food and beverages for guests, gas, car maintenance, utilities.
AIRBNB LINK ABOUT EXPENSES:
What expenses are deductible from My Airbnb Income?
Airbnb’s Ernst & Young report: General guidance on the taxation of rental income.
I feel I need to reiterate this point:
Even if you didn’t get a 1099 from Airbnb, you still HAVE to report your income.
Where is the Airbnb earnings summary?
Where do I find my Airbnb earnings for tax purposes?
Or go to your Dashboard there will be an alert, click on it, and it will take you to your Earnings Summary.
If you don’t see an alert there, go to Account , transaction history and you will see Earning summary on top.
This is what the Earning Summary looks like:
This is just the tip of the Airbnb and taxes iceberg. We also received questions about occupancy, or sales taxes. Some questions we could answer; others we couldn’t discuss since each state has different laws.
My recommendation is to please contact an accountant, CPA, or Derek. You can always deduct their fee on your taxes.
Until next time,
PS: You want the presentation? Get it here: