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5 lodging tax accounting mistakes vacation rental homeowners should avoid

  • Sep 26, 2017 | MyLodgeTax

Tax accounting paperwork

Renting out your property is a business, and accounting is an unavoidable fact of business. While this may not be your favorite part of renting out your property, it’s vital to make sure it’s done properly. Here are some accounting mistakes to watch out for.

1. Failing to account for both income tax and lodging tax

Many vacation rental property owners mistakenly believe if they report rental income to the government and pay income taxes on their profits, that’s the extent of their tax obligation. The truth is: If you’re renting out your property for short-term stays, you’re most likely also required to file lodging taxes. While you don’t have to pay lodging tax yourself, you do need to collect it from your guests and transfer it to the authorities.

2. Neglecting to keep proper records

It’s up to you to keep track of your transactions. You’ll need records of how much you charged guests and for what, as well as how much tax your guests paid and how much you paid to the tax jurisdiction. Set up a good system that makes it easy for you to find the information you need for filing, and in case the tax authorities come calling.

3. Charging the wrong lodging tax rate

Knowing which jurisdictions govern your location’s property is crucial when it comes to charging your guests the right lodging tax rate. Keep in mind your property may be governed by more than one tax jurisdiction, including city, county, state, or special jurisdictions. Determining your jurisdictions by using your ZIP code may not be accurate, so it’s best to use your exact street address.

The total tax rate to charge your guests is a combination of all the local lodging tax rates that apply to your property. For example, a total 10 percent tax rate could be made up of an 8 percent city tax, 1 percent county tax, and 1 percent state tax.

Lodging tax rates can and do change with economic and political winds, so stay up to date on the very latest rates. Use the free MyLodgeTax rate lookup tool to make sure you’re getting lodging tax rates right.

4. Calculating lodging taxes on the wrong amount

Lodging taxes are charged as a percentage of the total amount your guest pays, including the base rental rate as well as any other mandatory charges, such as fees for cleaning, booking, extra guests, etc. Refundable deposits or fees are not taxed, however. Depending on your jurisdiction, any services provided along with the lodging may or may not be subject to tax, so it’s best know which rules apply to you.

5. Assuming your listing site is collecting lodging taxes for you

Chances are, you’re using a listing service such as HomeAway, VRBO, or Airbnb, to showcase your vacation rental. These platforms take care of processing payments for you, but don’t assume they’re taking care of lodging taxes for you as well. Most don’t.

Airbnb, however, has begun collecting lodging taxes in certain locations. You can check here to see if this service is available for your property’s location. Keep in mind, however, that Airbnb may not be collecting lodging taxes for all jurisdictions that cover your property. For example, Airbnb might be collecting city taxes for you, but not state taxes. The responsibility to collect and file all lodging taxes due still falls on you as the owner.

Proper accounting is crucial for the success of your vacation rental business. Being aware of possible pitfalls can help you avoid problems and put you on your way to smooth sailing!

Lodging tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Avalara Author MyLodgeTax
At Avalara MyLodgeTax, we provide the fastest and easiest way for short-term and vacation rental property owners to comply with their lodging or occupancy tax requirements. We manage your lodging taxes so you don't have to and guarantee your compliance — period. If we make a mistake, we'll fix it at no cost to you. No contracts, no obligation, no worries. Never worry about lodging taxes again. Contact us at MyLodgeTax@Avalara.com.