Wednesday, August 31, 2016

4 Vacation Rental Tax Mistakes Almost Everyone Makes

Vacation rental tax mistakes

Lodging taxes are full of "gotchas."  In our guest blog post for our good friends at Evolve Vacation Rental Network, we outline some of the most common pitfalls we've seen in our 13+ years of experience ensuring that our customers are compliant with their lodging taxes.  Don't let one of these mistakes catch you off guard!

Thursday, August 25, 2016

The IRS launches Sharing Economy Tax Center, but it won’t help you with lodging tax

This week, the IRS unveiled its new Sharing Economy Tax Center to help active participants in the sharing economy navigate the many income tax considerations associated with common income-earning activities such as driving for Uber or renting out a room on Airbnb.  Unsurprisingly, the IRS content focuses on Issues for Individuals Performing Services – like a car shuttle service or short-term property rental.  But consider the source.  Remember, this is the IRS whose chief concern is how you report revenue from these activities and file your individual income tax returns.  They are focused exclusively on your income and collecting the proper taxes on that amount at the federal level.

But lodging tax has nothing to do with the IRS.  If you’re looking for lodging tax help on the new IRS website, you’re likely to be frustrated.  Although the site does provide useful information for vacation rental property owners about depreciation, amortization, as well as what expenses you can deduct (such as mortgage interest, real estate taxes, casualty losses, maintenance, utilities, insurance) – issues which will affect your annual taxable rental income – it does not provide any lodging tax compliance guidance whatsoever.

This is due to lodging tax being levied by the city, county, and at the highest level, state tax authorities – not at the federal level.  So while the IRS site may help you understand how to reflect personal earnings from your property rentals on your individual income tax return, it isn’t going to help with lodging taxes.  Which is where we come in.  Lodging tax is a particularly tricky tax because there are multiple entities involved – usually the city, county, and state.  And it’s typically up to the vacation rental property owners themselves to figure out their lodging tax obligations to each tax authority governing their property’s location.  If that doesn’t sound like much fun to you – hint, it isn’t – we can help.  We’ll take care of everything and automate your lodging taxes for you.  And we won’t ever refer you to an IRS Tax Center site – we promise!

Thursday, August 18, 2016

How Does MyLodgeTax Work?

We know how we do what we do, but do you?  Lodging taxes can be a confusing subject – sometimes explaining them and how we automate your lodging tax compliance can be difficult.  In this short & fun animated video, we cut to the chase regarding what lodging taxes are, how they affect vacation and short-term rental property owners, and what we do to automate the whole lodging tax compliance process.  All you do is report your rental revenue and we do the rest.  Watch and learn!

Monday, August 1, 2016

Lodging tax timing trauma - an example

Ok, so you know about lodging taxes and are confident you can tackle them yourself.  You’ve prepared your own income tax return in the past – how hard can this be?  Well, for starters, for most people, filing an income tax return is a once-a-year chore.  You do it once and then forget it until next April rolls around.  And you usually file both your federal and state return at once.  By contrast, the timing of lodging tax return filings & payment is typically monthly or quarterly – and possibly semi-annually or annually, too.  Plus, you’re likely dealing with at least three different tax authorities – city, county, and state – requiring three different (and separate) returns.

Let’s look at a quick example.

Guest:                                    Randy Renter
Nightly rate:                                       $200
Number of nights:                                  x 5
Total rental revenues:                      $1,000
Mandatory cleaning fee:                        $50
Total taxable revenues:                    $1,050

City tax rate:              4.2%
County tax rate:          3.5%
State tax rate:             2.1%
Total tax rate:             9.8%

Taxes charged:                                   $102.90
Total fees charged Randy:                $1,152.90

Although you are required to collect the $102.90 in taxes from Randy, it is not your money.  You are a “pass through” entity between your guest, Randy, who is paying the tax, and the taxing authorities.  However, it is you who are responsible for collecting the tax and remitting it to the city, county, and state tax authorities.

Back to our example.  The amount due to the individual tax authorities is:

Taxes due
City (4.2%):                   $44.10
County (3.5%):               $36.75
State (2.1%):                  $22.05
Total:                           $102.90

Filing frequency
City:         Monthly
County:   Quarterly
State:       Annually

In this example, you would have to file, at a minimum, a monthly return of $44.10 to the city.  If it’s not the end of a calendar quarter, you would have to hold on to the $36.75 in tax to the county until it’s time to file your quarterly return.  Similarly, you would have to retain the $22.05 owed to the state until the annual return is due.  If it’s the end of the year, you’d have to file all three separate returns to the city, county, and state.  Oh, and those months you don’t rent?  You’re still responsible for filing a return for $0 to the city.  Yep.  Can’t make this stuff up!

By now, you should be starting to get a sense for how the complexity of lodging tax compliance can quickly increase – especially if you have multiple properties.  Our guess is that you’d rather not have to deal with lodging taxes so that you can focus on other things – like renting your property and keeping guests happy.  But that’s just a hunch!  If you’d like to simplify your life, leave the taxes to us.