Cleaning Costs (Actual vs. Listed)- Tax liabilities?

Question

Having reviewed what's previously been discussed on this forum regarding whether people list what their actual cleaning cost is vs. a reduced (or in some cases inflated) price, can anyone share if there is a tax liability with this I'm unaware of? That is, initially I was surprised to learn that at least in Colorado, cleaning services are taxed (on AirBnB and VRBO). So, if my actual cleaning rate is $385 and I list it as $300 (and eat the difference), is this a potential tax problem down the road? Hopefully this makes sense- and thanks in advance for your thoughts. On the one hand, I doubt anyone submits if extra cleaning charges are incurred or needed (whether owner pays them or passes on to guest): viz. I don't think anyone is retroactively reaching out to VRBO to say the cleaning actually cost $450 (instead of the originally listed price). But I'm curious what people with much longer history- have experienced.

John Underwood · Answer

I agree with Ian.

cleaning fee is income. If you clean yourself you pay tax on alp of it.

If you have a cleaner, rhe claim the income, but you also deduct your expense for paying the cleaner.

I charge more than I pay the cleaners so that it helps with things like consumables and treats we leave the guest.

Ian Tyndall · Answer

There is no issue that I can think of regarding taxes. You report your total revenue from all sources and then deduct your cleaning expenses for income tax reporting. There isn’t any special treatment for this.

Michael Baum · Answer

Hey @Christina B. The guys are correct.

Personally I am a fan of having a cleaning fee. That way it is all broken out in the review. Everyone knows what they are paying.

Like @John Underwood said, it can really cost someone who stays for 2 weeks vs 3 days. You make extra cash (all taxable) but the longer the stay, the higher the cost.

John Underwood · Answer

I would rather charge market rent per night and people see that and then add the market cleaning fee.

Otherwise if you raise the rate to include Cleaning fees and someone stays a week, they are paying too much for the cleaning fee equivalent and this will make you look overpriced.

Andrew Steffens · Answer

Agreed with John and Ian.

If you breakeven, then no change

If you profit, you will be taxed on profit

If you take a loss, that loss can be deducted against other gains.

Christina B. · Answer

Thank you both @John Underwood and @Michael Baum. After re-reading Pricelabs' section on their recommended base price not including all the various fees (not just cleaning, but for example, Airbnb's own fees, etc.), I've reformulated the base price to consider all these fees so that it better reflects the total price the guest is paying (independent of taxes). While it's a topic for another day, I'm concerned over the softening of the market for domestic travel (although personally, it's great the US $ is doing so well). Grateful for this group.

Christina B. · Answer

Thank you @Ian Tyndall, @John Underwood, and @Andrew Steffens for your comments. I wonder if streamlining the cleaning cost into the ADR ("eliminating" another extra fee) encourages greater business (especially if positive reviews note place is clean, etc.) even if the market has shown it will bear the cleaning cost (and it's routine).

Scenario 1: Guest pays $400 per night for 2 nights plus $300 cleaning fee. Guest sees total for stay ($800), cleaning fee ($300), guest fee (OTA charge), occupancy taxes.

Scenario 2: Guest pays $550 per night for 2 nights. Guest sees total for stay ($1100), guest fee (OTA charge), occupancy taxes.

Total still comes to the same. I was initially confused because the OTA manages the taxes on cleaning whereas if I end up paying more for cleaning, I'm not aware that I have to remit further taxes to the government beyond what's already known. (I get that it's an expense, etc.) I just pay the cleaners, record the extra expense (all gets submitted to our accountant), and move on. It's also a strange thing as while we can submit the cleaning cost online (that gets taxed), it's not like other services get taxed in a similar way (e.g. I use a maintenance service for the hot tub and while that cost is a factor in pricing, we don't submit that as an extra charge to the OTA platform although it's a service). I'm all for making things simpler, lol.

Cleaning Costs (Actual vs. Listed)- Tax liabilities?

Cleaning Costs (Actual vs. Listed)- Tax liabilities?

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