A HURDLR QUICK GUIDE Financial & Tax Planning for Airbnb Hosts & Landlords 4 Easy Ways to Maximize Your Income and Simplify Your Taxes © 2015 Hurdlr, Inc. All Rights Reserved. LET’S TALK FINANCES We’ve put together some helpful tips to keep in mind when managing your finances. So let’s get started. Most Airbnb Hosts and Landlords don’t track all of their business expenses DID YOU KNOW? and related tax deductions, effectively lowering their profits. As we’re sure you understand all too well, it’s not uncommon for Airbnb hosts and landlords such as yourself to let financial management fall by the wayside. You are constantly respond- ing to the needs of tenants and working on improving your rental or vacation property to be as accommodating as possible. Amongst all of these demands, figuring out how to do your ac- SEPARATE ACCOUNTS counting or learning your way around cumbersome financial software can seem like a daunting and overwhelming task. Certainly, it takes a lot of time to track expense deductions, and you may not be sure how to do the accounting yourself; the software you’re using may be compli- BOOKKEEPING cated, and you may not have the time or energy to push through the learning curve. And even if you’re just keeping all of your receipts in a folder, or using Microsoft Excel or Google Docs KNOW THE BASICS as your primary tool for financial planning (we call that “Spreadsheet Accounting”), all of these take a significant amount of time and effort to maintain and stay organized, even for just a single property. DEDUCTIONS However, through proper financial planning takes time, it’s a crucial task for Airbnb hosts and BONUS landlords alike. Did you know that you could be saving a good deal of money by taking the ap- propriate deductions? But you’re busy – we get that. If you only had more time and energy to focus on your finances, you would. That’s where Hurdlr comes in. We are here to help ease your number crunching anxieties. We have developed this guide in order to help hosts and landlords like you simplify your account- ing and save money, so when tax time comes around, you will be a little less overwhelmed by it all. Financial & Tax Planning for Airbnb Hosts & Landlords 2 © 2015 Hurdlr, Inc. All Rights Reserved. SEPARATE ACCOUNTS Always have separate credit card and bank accounts for “Business” and “Personal” finances. Co-mingling your rental property and personal funds can be a recipe for disaster, even though landlords are technically allowed to do so. Whether you’re a landlord or a host, open up a separate checking account where you can deposit your rent proceeds or Airbnb, VRBO and HomeAway payments, pay your mortgage (or rent) from and cover the operating and maintenance expenses you incur on a day-to-day basis. Write yourself a check from your rental account to your personal account when you need money to cover personal expenses, go on vacation, or buy that new TV. By keeping your finances separate, it will be easier to see how well your rental property is doing, organize transaction records, file your taxes, and claim SEPARATE ACCOUNTS deductions for your rental expenses. BOOKKEEPING KNOW THE BASICS DEDUCTIONS BONUS Financial & Tax Planning for Airbnb Hosts & Landlords 3 © 2015 Hurdlr, Inc. All Rights Reserved. BOOKKEEPING Don’t fall behind on your bookkeeping, or put off your accounting until tax time! Make an effort to update your financial information on a regular basis. You will find it easier to remember the details of each transaction and save time and money when you need to file your tax return. If you’re into using the latest apps and technology, try downloading Hurdlr or Evernote on your smartphone to track your rental expenses. Hurdlr simplifies financial plan- ning for you completely. If you hate entering all of your information into some app, then take heart: with Hurdlr, you barely have to do any data entry at all. Simply sync your credit card and bank accounts with Hurdlr and the app pulls the transaction data for you. It’ll even pull your rental or Airbnb payments for you. Then, you’re set! SEPARATE ACCOUNTS BOOKKEEPING IRS Publication 583 is a great resource for sole proprietors and business owners to find more information on recordkeeping and tracking business expenses. KNOW THE BASICS DEDUCTIONS BONUS Financial & Tax Planning for Airbnb Hosts & Landlords 4 © 2015 Hurdlr, Inc. All Rights Reserved. KNOW THE BASICS Get to know your local taxes. If you are renting your property on a short-term basis, your city or state may impose DID YOU KNOW? occupancy, lodging, use or hotel tax on your rental income. It is important to note that these taxes are usually remitted to your city, county or state on a monthly or quarterly basis and are in addition to your regular income taxes. If you are an Airbnb host, and you live in a jurisdiction that imposes some type of occupancy SEPARATE ACCOUNTS tax, such as San Francisco, Airbnb typically handles the administration of this tax and deducts it from the payment they submit to you. BOOKKEEPING Regardless of whether you market your rental through Airbnb, VRBO, HomeAway or inde- pendently, you should visit your locality’s tax and revenue website to find out if you are re- KNOW THE BASICS quired to pay additional taxes on your short-term rental (that are not already administered by the rentals marketplace you may be using). DEDUCTIONS BONUS Airbnb’s website is a great resource for additional information on occupancy taxes. Check out this article, as well as this one to get started. Financial & Tax Planning for Airbnb Hosts & Landlords 5 © 2015 Hurdlr, Inc. All Rights Reserved. KNOW THE BASICS Understand your classifications Unfortunately, being a landlord or host isn’t always easy. There are a number of different clas- sifications with which you need to familiarize yourself, so that when tax time rolls around, you’ll feel a little more prepared (and maybe a little less stressed out!). Host vs. Landlord (Which One Are You?) Depending on what type of rental activity you are engaged in and how you rent your property, you could be considered either a host or a landlord. Here’s the difference: Hosts typically rent their properties on a short-term basis through rental marketplace plat- SEPARATE ACCOUNTS forms like Airbnb. At the end of the year, hosts will receive a 1099-K from Airbnb, so they can properly report rental income on their tax return. BOOKKEEPING Landlords typically rent their properties on a long-term basis independently through web- sites like Craigslist or Zillow, or through a local real estate agent. Unless a landlord is rent- KNOW THE BASICS ing to a business, she most likely will not receive any type of 1099 to help her report rental income at the end of the year. DEDUCTIONS Regardless of whether you are a host receiving a 1099, or a landlord who has independently kept track of rental income throughout the year, it is important to remember that the payments BONUS you receive from your guests or tenants will not have any taxes withheld. You should plan on setting aside a portion of your rental income to cover any federal and state income taxes you may be subject to at the end of the year. Apps like Hurdlr can estimate your taxes for you and alert you when payments are due. Security deposits are not considered rental revenue unless it is clear you will not be issuing a refund. Financial & Tax Planning for Airbnb Hosts & Landlords 6 © 2015 Hurdlr, Inc. All Rights Reserved. KNOW THE BASICS Understand your classifications Rental vs. Business (Which One is It?) If you provide substantial services in conjunction with your property, you may be required to report your residential rental activity differently. How you classify your rental activity will have implications on what IRS schedules you file, what taxes you are subject to, and how much loss you are able to deduct. If you rent rooms or apartments and provide basic services, you would normally report your rental income and expenses on Schedule E. SEPARATE ACCOUNTS • You will be required to determine if you are subject to Passive Activity Loss Limitations (to be covered on following pages). BOOKKEEPING • You can include multiple properties on one Schedule E (use columns A, B, C). KNOW THE BASICS If you rent rooms or apartments and provide substantial services (maid service, regular DEDUCTIONS cleaning, cooking, etc.), as a hotel or Bed and Breakfast would, you should report your rent- al income and expenses on Schedule C. BONUS • You will not be subject to Passive Activity Loss Limitations. • You will be subject to self-employment tax on your rental income. Financial & Tax Planning for Airbnb Hosts & Landlords 7 © 2015 Hurdlr, Inc. All Rights Reserved. KNOW THE BASICS Understand your classifications Rental vs. Business (Which One is It?) Cont. If you rent rooms or apartments through a partnership, S Corp., C Corp., or other busi- ness type, you will need to report your rental activities differently, such as on form 8825 or schedule 1065, 1120, 1120S, etc. Consult with your tax advisor on what filings will be most appropriate for you if you have an interest in a business that owns rental properties. Generally, both Schedule E filers and Schedule C filers are subject to 1099 reporting re- quirements if they paid contractors or service providers over $600 during the year. Service SEPARATE ACCOUNTS providers may include plumbers, carpenters, lawyers, accountants, etc. Refer to IRS publi- cation 1099-Misc for additional details and reporting exceptions. BOOKKEEPING Substantial services exclude providing basic utilities or cleaning of common areas. KNOW THE BASICS Refer to IRS publication 334 Real Estate Rents for details of what is considered to be a “sub- stantial service.” DEDUCTIONS BONUS For help understanding whether you’re a host or landlord or whether you should file as a business or rental, check out our flow diagram on the next page. Financial & Tax Planning for Airbnb Hosts & Landlords 8 © 2015 Hurdlr, Inc. All Rights Reserved. Financial & Tax Planning for Airbnb Hosts & Landlords 9 © 2015 Hurdlr, Inc. All Rights Reserved. KNOW THE BASICS Understand your classifications Personal Residence vs. Rental Property (Which One Is It?) Depending on how many days you use your rental property for personal use, the tax implications are different: If you rent out your property or a room in your house for fewer than fifteen days during the year, then you do not need to report any rental income or deduct any rental expenses. Your home or second property would be considered a rental unit if you use it for personal purposes for less than 15 days or 10% of the total days you rent it to others at a fair rental price. SEPARATE ACCOUNTS • If your property is considered a rental, you can deduct all qualifying expenses related to the rental property (generally subject to passive loss limitations). BOOKKEEPING Your home or second property would be considered a personal residence if you use it for KNOW THE BASICS personal purposes for more than the greater of 15 days or 10% of the total days you rent it to others at a fair rental price. DEDUCTIONS • If your property is considered a personal residence, you can deduct the portion of your home expenses directly related to your rental activities (generally subject to passive loss limitations) based on the number of days and how much of your BONUS property you rented. Refer to IRS Topic 415 and Publication 527 for additional information and for the IRS definition of personal use. To help you determine which property type to choose see our diagram on the following page. Financial & Tax Planning for Airbnb Hosts & Landlords 10 © 2015 Hurdlr, Inc. All Rights Reserved.