As a physician, you have worked hard to build your career and provide valuable services to your patients.
However, with the rise of short-term rental platforms like Airbnb and HomeAway, you now have a new opportunity to generate additional income through short-term rentals.
While this can be an excellent source of passive income, it also comes with additional tax responsibilities. In this blog, we will discuss short-term rental tax strategies for medical professionals to help you make the most of your investment.
Planning Taxes: Why is it Important?
Before diving into the specifics of short-term rental tax planning, it's essential to understand why planning taxes is important - It can help you minimize your tax liability and maximize your post-tax income.
It lets you benefit from all the available deductions, credits, and loopholes to ensure that you are not overpaying on taxes. Additionally, tax planning can also help you avoid any potential tax penalties or fines.
To ensure that you are making the most of your short-term rental income, you can work with a certified tax strategist who will help you navigate the complex tax laws and regulations. Medical tax accountants can provide you with valuable insights and advice on how to minimize your tax liability and optimize your financial strategy.
Short-Term Rental Tax Planning: What You Need to Know
An STR, or short-term rental, refers to a property that is typically rented out for a period of less than seven days.
Working as a healthcare provider, you likely have a busy schedule, which means you may not have the time to manage your short-term rental property's tax affairs. Here are some key strategies to keep in mind when planning taxes for your short-term rental property:
Understand Your Tax Obligations
Before you start renting out your property on a short-term basis, it's essential to understand your tax obligations. Depending on your location and the nature of your rental activity, you may be subject to federal, state, and local taxes.
In some cases, short-term rentals may fall under the category of passive income, which means that you may be eligible for special tax treatment. Working with a medical tax accountant can help you determine your tax obligations and ensure that you are complying with all the necessary regulations.
Keep Accurate Records
Accurate records are crucial for proper short-term rental tax planning. You should keep track of all your rental income and expenses, including property taxes, mortgage interest, cleaning fees, repairs, and maintenance costs. You should also keep receipts and invoices for all expenses related to your rental property.
By keeping accurate records, you can ensure that you are claiming all the available deductions and credits, which can help you minimize your tax liability. Additionally, keeping detailed records can also help you avoid any potential tax audits or disputes with the IRS.
Take Advantage of Deductions and Credits
As a short-term rental property owner, you may be eligible for several tax deductions and credits. These may include:
Depreciation: You may be able to deduct a portion of your property's value each year to account for wear and tear
Home Office Deduction: If you use a portion of your rental property as your home office, you may be able to deduct related expenses such as utilities, internet, and phone bills
Travel Expenses: If you travel to your rental property to manage it, you may be able to deduct related expenses such as transportation, lodging, and meals.
Section 179 Deduction: This allows you to deduct the full cost of certain property expenses in the year you purchase them, rather than depreciating them over several years.
Working with a certified tax strategist can help you determine which deductions and credits apply to your situation and maximize your tax savings.
Consider Your Rental Activity Type
The type of short-term rental activity you engage in can affect your tax liabilities. For example, if you rent out a portion of your primary residence for fewer than 15 days each year, you may not have to report the rental income on your tax return. However, if you rent out your property for more than 14 days a year, you will need to report the rental income on your tax return.
On the other hand, if you rent out your property for more than 180 days each year, your short-term rental activity may be considered a business, and you may be subject to additional tax regulations and requirements. Working with a medical tax accountant can help you determine your rental activity type and ensure that you are complying with all the necessary regulations.
Plan for Tax Withholding
If you rent out your short-term rental property through a platform like Airbnb, the platform may withhold taxes on your behalf. However, the amount of tax withheld may not cover your total tax liability. Therefore, it's essential to plan for tax withholding and set aside enough funds to cover your tax obligations.
In conclusion, short-term rental tax planning can be complex, but with the strategies covered in this blog, you’ll be able to make the most of your investment.
At PRIME Financial Services, our team of tax professionals can help you organize your tax planning strategy to ensure that you can enjoy a secured financial future.