Why read this article?
Many Accountants inexperienced with Vrbo overlook deducting the hidden amounts buried within the Vrbo 1099-K – and no, we’re not talking about general expenses everyone already knows about. The numbers reported by Vrbo 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 Vrbo 1099-K and the numbers Vrbo reports to the IRS for each Host. If you manage or own a property on Vrbo (a “Host”), you can get burned at tax time if you’re not careful with how you interpret the Vrbo 1099-K.
(If you haven’t already, be sure to check our comprehensive guide to Vacation Rental Accounting & Bookkeeping)
About the Vrbo 1099-K
To put into context, each year Vrbo 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 Vrbo 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 Vrbo 1099-K differs from what you submit on your tax form, the IRS might flag your return for a review.
Vrbo 1099-K Reports gross earnings, NOT net
There are fees charged to each Host and accrued by Vrbo 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 Vrbo. 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:
Vrbo Base Commission and Payment Processing Fees are NOT deducted in the Vrbo 1099-K
For every reservation, Vrbo charges a base commission and payment processing fee to the Host. These fees are substracted from reservation earnings before each payout hits the Host’s bank account and are not deducted from the Vrbo 1099-K reported numbers.
Refunds are NOT deducted in the Vrbo 1099-K
When Hosts on Vrbo pay a refund to a guest, whether due to a resolution adjustment, shortening of a stay or cancellation; Vrbo 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 Vrbo 1099-K.
See for yourself
Obtain a copy of your Vrbo 1099-K. The completed form can be downloaded from your Vrbo account. From here, you can see the difference for yourself if you download the transaction history CSV from Vrbo for the year. Or even better, download the transactions from your bank statements and sum up the total amount received from Vrbo for the year. You’ll notice a sizable gap between the total amounts received from the bank and the increased amounts reported in Vrbo’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 Vrbo 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.
Vrbo 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 Vrbo, you can compile a spreadsheet and calculate Vrbo service fees and refunds for the year manually using Vrbo’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 Vrbo 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 Vrbo 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 Vrbo listings with your bookkeeping software to separate and keep track of your revenues and fees automatically.
Regardless of whether you’re reporting Vrbo income to the IRS personally on Schedule C or reporting as a company, the same problem applies. There’s a difference between what Vrbo 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 Vrbo 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.