With short term rental regulations changing day-day, it’s important to keep up and adapt with the regulatory landscape. A simple change, like ski-town, Breckenridge’s requirement of a responsible agent, can add another expense to your P&L.
Are you tracking your income and expenses for your short-term rental on Airbnb? Do you have an accountant to help with with your taxes? Have you considered the tax ramifications of your Airbnb, especially for your Airbnb in Chicago?
The good news is that there are tools and resources that can help you. And if you REALLY don't want to deal with them, we can help ;) Here are tax insights for your Airbnb:
Go Pro? The Right Questions to Ask
Whether you choose to prepare your taxes yourself or have a professional do them for you, it’s important to get the full scope of the tax implications so you know your true return, ie yield. We recommend walking through your taxes with professional help.
If you choose to do your taxes yourself, there are some resources that provide educational tools to understand the tax process. Ernst and Young and Airbnb havean in-depth guide here. This a must for most every Airbnb host. You'll learn how to cover everything from deducting maintenance costs to reporting rental income.
Here is a local guide for Illinois and Chicago taxes. The most relevant questions to ask yourself include:
How much of your Airbnb income must you report?
Which tax deductions do you qualify for?
Which forms should you file?
How can you stay compliant with estimated taxes and penalties?
How To Handle Taxes with Your Airbnb and Short Term Rental
Tax deductions are great because they help you pay fewer taxes. An Airbnb tax deduction is incurred in Chicago when you incur an expense in order to generate more income. For an Airbnb host, this may include:
Mortgage or monthly lease payments
Sheets, linens and other soft goods in your rental unit
Cleaning fees you pay to a service provider
Netflix/entertainment service costs
The important thing is to track your expenses. In order to claim these deductions keep all receipts and proofs of purchase in order to reduce your risk of tax penalties.
The 14-day Exception: Room-sharing
If you rent out one room in your house, the 14-day rule applies in the same way as if you rent out your property. If guests stay for 14-days or less, you don’t have to report the income , but you cannot take any deductions either
Track+Keep records of rental periods
Airbnb and short-term rental platforms are nice because they help you track and keep records. If you rent out your place for two weeks or less, keep track of rental days and days you use the residence yourself.
If you rent for longer than the 14-day exception period, detail the dates precisely so you can properly divide out personal and business expenses, like mortgage interest.
Airbnb Occupancy Tax in Chicago
In Illinois and Chicago, the municipalities impose occupancy taxes on short-term rentals. These vary widely from one jurisdiction to the next, from the name of the tax—hotel tax in some states, transient lodging tax in others—to the rates and rules. Here are the tax rules for Chicago.
Sometimes, the host is required to collect the occupancy tax directly from renters and submit the money to the tax authority. However, in certain cities and states Airbnb collects and submits the taxes. Airbnb imposes and remits these taxes in Chicago.
Self-Employment Taxes for Your Airbnb
Depending on how you structure your Airbnb business in Chicago, you may have to pay self-employment taxes, as well as income taxes. Self-employment taxes cover Social Security and Medicare contributions for income you make when you are in business for yourself.
When you Airbnb your home, make bookings and provide amenities like coffee or breakfast, the IRS treats you as being self-employed in the vacation rental business.
Prepare, prepare, prepare
Track, prepare, and use a professional is our best advice. Airbnb is still a new tool so always be prepared to receive a letter from the IRS. Don’t worry, just keep all of your documentation at hand.