Airbnb Tax Evasion: Here’s the catch!
Airbnb Tax Evasion
Professional landlords using Airbnb to rent out properties are required by law to pay tax on any profitable earnings. If you let out your property for more than 14 days a year, then your profits are potentially taxable and not declaring your earnings is considered Airbnb tax evasion.
Airbnb tax evasion has made news headlines over the last few years as Airbnb, and the U.S. Government, tighten security and implement systems to crack down on tax evasion.
In the United States, there is a federal requirement to complete a 1099-K form to support tax compliance. The penalty for tax evasion is jail time or a hefty $250,000 fine. Renting out the property as a professional landlord is a profitable way to earn an income, but what has formerly been a grey area regarding taxes is now increasingly on the tax departments radar.
Is Airbnb Taxable?
Airbnb rentals are subject to the 14 Days or “Masters Rule” which states that if you rent the property for no more than 14 days during the year, and use the property yourself 14 days or more during the year, then no tax is liable.
Landlords who rent their property for more than 14 days a year are required to submit a 1099-K form. Within this form you are must declare all income, but you are also allowed to deduct certain rental related items from the profits.
As a landlord, you are entitled to deduct all “ordinary and necessary” expenses from your tax bill. Any costs that are directly related to the rental of the property may be deducted from your profits. If you provide tea & coffee or buy new bedding, then this is a deductible expense.
This means that your final tax bill will be dependent upon your net profits rather than the gross.
Please note: If you are renting a room out within your property you are not liable for tax until you reach an earnings threshold of $7,500.
If you are a professional landlord renting your property out for more than 14 days, you MUST submit a 1099-k form to avoid the federal penalty for Airbnb tax evasion.
How Much Will My Tax Bill Be For My Airbnb Income?
The 2018 United States federal tax system has seven tax brackets based on your income. If you are a low earner than your tax is considerably less than a high-income landlord. The lowest brackets start at 10% and climb up to 37%.
The tax structure is progressive. So you if you fall into the 24% tax bracket you will only pay tax on the proportion that is above $82,501.
Check out my previous blog on the tax structure here and check out the table below:
Please note that I am not a tax professional. This is the latest tax information based on my research. I advise you to seek out a tax professional or accountant yourself.
In addition, this is the tax for the United States only. Tax rates vary all over the world, so please check online or with a tax adviser for tax guidelines if you are renting in a different country.
If you are unsure how to find out total Airbnb earnings, this blog post will point you in the right direction.
Airbnb Tax Advice
While it is tempting to avoid paying taxes, particularly if you are a low earning landlord, the spotlight has never been more intensely focused on landlord earners. The penalty for Airbnb tax evasion is jail time or a fine of up to $250,000. The penalty for misrepresentation of income on a tax form in an attempt to lower your tax band is similar.
I recommend you use Turbotax for submitting your return. Turbotax is an easy tax reporting system which I use for all my taxes. Submitting your return has never been easier!
Note: Airbnb tax evasion is a federal crime and never recommended.
Get savvy with your Airbnb taxes and make sure your reporting is in on time.