Why read this article?
Many Accountants inexperienced with Airbnb overlook deducting the hidden amounts buried within the Airbnb 1099-K – and no, we’re not talking about general expenses everyone already knows about. The numbers reported by Airbnb are higher than what is actually paid out to Hosts. As a result, the taxes paid by many Hosts are higher than what they owe.
This article is about the Airbnb 1099-K and the numbers Airbnb reports to the IRS for each Host. If you manage or own a property on Airbnb (a “Host”), you can get burned at tax time if you’re not careful with how you interpret the Airbnb 1099-K.
(If you haven’t already, be sure to check our comprehensive guide to Airbnb Accounting & Bookkeeping)
About the Airbnb 1099-K
To put into context, each year Airbnb issues form 1099-K to the IRS for each Host who receive $20,000 or more in gross revenues or surpass 200 transactions by the end of the year. Assuming you’ve received a 1099-K from Airbnb for the year, to avoid being questioned by the IRS, you’ll need to report the exact amount shown in box 1a as gross receipts and will need to write off all expenses and refunds from there. If the income recorded on the Airbnb 1099-K differs from what you submit on your tax form, the IRS might flag your return for a review.
Airbnb 1099-K Reports gross earnings, NOT net
There are fees charged to each Host and accrued by Airbnb for each reservation throughout the year and it is up to you to calculate them for deduction. These fees are removed from each payout before hitting the Host’s bank account, yet are not subtracted from the 1099-K reported by Airbnb. This is a common thing amongst online payment processors who report via 1099-K whereas the total income is reported (gross), not the amounts minus fees deducted (net). Namely:
Airbnb Service Fees are NOT deducted in the Airbnb 1099-K
For every reservation, Airbnb charges a 3% fee to the Host (in some cases, 15%). These Airbnb service fees (also known as host fees) are substracted from reservation earnings before each payout hits the Host’s bank account and are not deducted from the Airbnb 1099-K reported numbers.
Refunds are NOT deducted in the Airbnb 1099-K
When Hosts on Airbnb pay a refund to a guest, whether due to a resolution adjustment, shortening of a stay or cancellation; Airbnb simply subtracts the refund amount from the Host’s next payout, rather than processing an actual refund from the Host’s bank. However, these refunds are not deducted from the Airbnb 1099-K.
See for yourself
Obtain a copy of your Airbnb 1099-K. The completed form can be downloaded from your Airbnb account’s Payouts Page under Taxpayer info. From here, you can see the difference for yourself if you download the transaction history CSV from Airbnb for the year. Or even better, download the transactions from your bank statements and sum up the total amount received from Airbnb for the year. You’ll notice a sizable gap between the total amounts received from the bank and the increased amounts reported in Airbnb’s 1099-K. Furthermore, you’ll notice this gap is not in your favor.
Many Hosts are not aware of this gap. Many of which mistakenly accept the 1099-K from Airbnb on face value without separating and deducting these fees, resulting in many Hosts getting burned every year. Therefore, maintaining a system of accounting is a good investment for catching buried fees like this (among many other advantages). Upon closer observation, you’ll arrive at the same finding and will need to close the gap.
Airbnb 1099-K: Closing the expense gap
You can resolve this issue a few ways. Now that you’re aware of the gap, when you receive a 1099-K from Airbnb, you can compile a spreadsheet and calculate Airbnb service fees and refunds for the year manually using Airbnb’s transaction history. From there, you can declare the fees as direct costs and refunds, and include them as separate deductions for the year (on top of all other deductions). This way assumes you know what you’re doing with your accounting.
The better way? Get an Accountant that specializes in Airbnb businesses. Ryan Gallagher, Owner of Vacation Rental Bookkeeping and a highly respected advisor in the short-term rental industry, says it best…
“A bookkeeper who specializes in your industry can get you set up correctly, will already have ideas to share that will help you earn more money, and will save you from paying huge fees… A great bookkeeper will also use the software which best applies to your business and gives you the right reports.”Source
The Airbnb 1099-K issue we discuss in this article is just one example of how Hosts get burned financially, and it’s not even the worst. We’ll discuss other issues in other articles.
Lastly, if you’re adamant about hiring an Accountant full time, consider at least hiring one to help you set up your bookkeeping system and get you started. While they get you set up, you can plug in BNBTALLY to integrate your Airbnb listings with your bookkeeping software to separate and keep track of your revenues and fees automatically.
Regardless of whether you’re reporting Airbnb income to the IRS personally on Schedule C or reporting as a company, the same problem applies. There’s a difference between what Airbnb reports in their 1099-K and the amount you actually receive, and this difference is not in your favor. You’ll need to figure out the total amount of Airbnb service fees and refunds, and have these deducted from the reported 1099-K to save yourself from paying the added taxes. And if you have an Accountant who’s well versed in the industry, they’ll already know to do this.
Great explanation of this important issue. The IRS wants full disclosure of your rental income and expenses, and unfortunately just keeping track of how much Airbnb deposits in your bank account does not cut it. Bnbtally does a great job of breaking out all of the parts of the Airbnb payouts which provided great reporting in QuickBooks and will provide the numbers you need for your taxes.