Approximately 10 million individuals file an extension every year, and many of them are homeshare hosts. If you rent on Airbnb, you should consider a few things. This list explains the top three things you should consider before pulling the trigger on your Airbnb tax extension. Check out our special blog post on COVID-19 tax extensions to learn more about the modified tax schedule for 2020.
1. Reporting Income
The Internal Revenue Service (IRS) classifies Airbnb hosts as independent contractors. If you’re very active on the platform, you’ll receive a 1099-K form from Airbnb. This form reports your gross earnings on Airbnb; the IRS also gets a copy. If your return doesn’t match the info on your Airbnb 1099, the IRS will quickly discover the discrepancy. Most hosts won’t receive a 1099-K Form from Airbnb, but you are responsible for reporting your earnings either way.
Keep in mind that the gross amount reported does not include hosting fees or occupancy taxes that have been withheld from their payments to you. Before you file your return, access your Airbnb dashboard and download all of the expenses that you incurred through the platform.
Your return will also include other deductions for your Airbnb. You will not get an automatic IRS letter if the number reported on your tax return is below the amount reported on your 1099, but you will get a letter from the IRS if this number reported on your tax return is less than your 1099. Make sure you reconcile the 1099-K at with and your Schedule E gross revenue sheet, Schedule C, or business entity return.
You can deduct expenses that directly relate to your Airbnb business. There are dozens of different categories of deductions, but here are a few of the most common:
- Mortgage payments or monthly lease payments
- Sheets, linens, towels, or other soft goods purchased for your guest’s use
- Cleaning fees
- Netflix/Hulu/entertainment service costs
- Professional fees
These deductions will lower your taxable income and reduce your overall tax bill. You should claim as many deductions as possible to maximize your tax savings. However, only claim deductions that meet IRS qualifications, or you could end up in hot water with the tax authorities if your return is ever reviewed. If extending your tax filing date to October will allow you to claim more deductions, it’s probably worth applying for an Airbnb tax extension. See our blog post on maximizing Airbnb deductions for more details.
3. Running Late
In most cases, Airbnb hosts file extensions because they fall behind on preparing a tax return they feel confident with. Applying for an automatic extension pushes your filing deadline to October 15th, so you will have a few extra months to handle your business. However, the rules get even tighter if you miss the extended filing deadline. The IRS won’t accept electronic returns after this date, so you have to file a paper return if you don’t make the deadline. The IRS scrutinizes late returns closely, so the chance of audit goes up dramatically for late filers. Important to note: even though you get an extension to file, it is NOT an extension to pay. You must pay estimated taxes by January 15 of the year in which you file and you must pay any remaining liabilities by the initial filing deadline (typically April 15). If you’re late because of a payment issue, you can also request a payment plan. However, make sure you’re caught up on your tax payments and filings before you apply, or you might not qualify.
Answers to Your Airbnb Tax Questions
Our team of Airbnb tax experts is standing by to answer your tax questions. If you’re not sure whether an Airbnb tax extension is right for you, talk to a Shared Economy Tax pro today. Get started now with a one-on-one strategy session to talk to a tax pro about your issues. You can also sign up for our complimentary tax tips newsletter using the form below.