Expert Guide to Short-Term Rental Bookkeeping

July 24, 2023

March 7, 2024

Corey Reid

Expert Guide to Short-Term Rental Bookkeeping

We are excited to put together this guide to Short-Term Rental bookkeeping. 

Whether you're a property owner, real estate investor, or someone looking to maximize the profitability of your vacation rental, this blog is for you! 

We will delve into Short-Term Rental bookkeeping, exploring its significance, unique considerations, and how to streamline the process. By the end, you'll clearly understand the importance of bookkeeping in managing your rental income, expenses, and tax obligations.

What is Short-Term Rental bookkeeping, and why is it important?

Short-Term Rental bookkeeping involves systematically recording financial transactions and activities for your vacation rental property. It helps you understand the profitability of your business, make informed decisions on pricing, occupancy, and amenities, and optimize expenses for better profitability. Additionally, it allows you to take advantage of tax benefits by accurately tracking expenses and rental activity. In summary, Short-Term Rental bookkeeping provides a comprehensive view of your vacation rental business, helping you make informed financial decisions and ensure compliance with tax regulations.

Why does Short-Term Rental bookkeeping differ from traditional bookkeeping for a business?

Make bookkeeping more efficient with technology!

While the fundamental principles of bookkeeping remain the same, Short-Term Rental bookkeeping has some unique considerations compared to traditional business bookkeeping.

Fluctuating Rental Income

One of the key differences in Short-Term Rental bookkeeping is the fluctuating nature of rental income. Unlike traditional businesses that often have a steady income stream, vacation rental income varies based on factors such as seasonality, demand, and pricing. This necessitates careful tracking of rental income to manage cash flow effectively.

Understanding the relationship between pricing, occupancy, and rental income is crucial for Short-Term Rental bookkeeping. Property owners can optimize their rental income and maintain a consistent cash flow throughout the year by tracking occupancy rates and adjusting pricing strategies.

Higher Turnover and Expenses

Bookkeeping is overwhelming. But you should avoid these mistakes!

Short-Term Rentals typically experience higher turnover compared to long-term rentals, resulting in increased expenses and accounting complexities. Property owners must account for expenses such as cleaning, maintenance, amenities, and refunds associated with short stays. These expenses need to be carefully tracked and recorded to accurately assess the profitability of the rental property.

Variable Cost Structure

Short-Term Rental bookkeeping also involves managing a variable cost structure. Property owners must consider expenses related to pricing, subscriptions, and amenities that fluctuate based on occupancy and guest demands. By tracking these variable costs, owners can identify opportunities to optimize expenses and maximize profitability.

Revenue Collection Complexities

Within the Short-Term Rental industry, properties that are listed on Airbnb, Vrbo, or other online travel agencies (OTAs), collect money from payout systems embedded in the OTA, or payment processors integrated into the OTA. These systems do not payout in a one-to-one format with respect to bookings. These systems payout in bulk, any amount they have collected over the previous payout interval. With this, property managers end up getting revenue numbers that are actually a combination of multiple bookings, properties, refunds, etc.

Tracking the details of what bookings the payout has included in it, and the unit level economics associated with allocating the transaction to the correct property, is a very difficult task that involves a lot of manual reconciliations. Further, it involves many disconnected systems as typical generic accounting software do not integrate directly with the payout systems or property management systems. This makes breaking down the revenue from these payout systems very inefficient and time consuming without automation. Clearing has integrated with both OTAs and property management platforms, and payment processing systems, to be able to help property managers automate this mundane task. 

Unique Tax Considerations

Short-Term Rental bookkeeping also brings with it unique tax considerations. Understanding the tax laws and regulations specific to Short-Term Rentals is crucial for property owners. Here are some key tax considerations to keep in mind:

  • Keep track of rental income and expenses separately from personal finances.
  • Understand the tax laws for Short-Term Rentals in your area, including occupancy taxes and sales taxes.
  • Consider hiring a tax professional to help navigate the complex tax requirements.
  • Keep detailed records of expenses related to the rental property, including repairs, maintenance, and supplies.
  • Keep track of any deductions you may be eligible for, such as mortgage interest, property taxes, and depreciation.

By adhering to these tax considerations and maintaining accurate records, Short-Term Rental property owners can ensure compliance with the Internal Revenue Service (IRS) and take advantage of the tax benefits available.

How often should I complete my bookkeeping for my Short-Term Rental property?

Consistently updating your bookkeeping records for your Short-Term Rental property is essential for accurate financial reporting, tax compliance, and maximizing the benefits of bookkeeping.

Establishing a regular schedule for updating your bookkeeping records helps ensure the accuracy of financial transactions throughout the year. Monthly updates are usually sufficient for most Short-Term Rental property owners, but the frequency can vary depending on the volume of transactions and personal preferences.

Regularly updating your bookkeeping records enables you to generate financial statements that provide an overview of your rental property's financial health, such as income, expenses, and net earnings. These statements can help you make informed decisions about your rental business, identify areas of improvement, and track the profitability of your property. Clearing helps by providing automation in both the bookkeeping, and reporting for your Short-Term rental properties. Profit & Loss statements can be generated on demand, so when you have reconciled your accounts for that month, you will be able to create business, or individual property, P&Ls for your accounting needs. 

A well-organized bookkeeping system is key to efficient Short-Term Rental bookkeeping. Consider using accounting software or online platforms specifically designed for rental property bookkeeping. These tools, like Clearing, offer features such as expense tracking, income management, and tax calculations, making the bookkeeping process more streamlined and less time-consuming.

How can I streamline my Short-Term Rental bookkeeping process?

Top bookkeeping strategy: outsource them.

Streamlining your Short-Term Rental bookkeeping process can save you time and reduce the chances of errors. Here are a few ways to simplify your bookkeeping:

Use a generic Accounting Software

One option for streamlining your Short-Term Rental bookkeeping process is to use generic accounting software. Accounting software like QuickBooks Online and Xero offer features specifically designed for small business owners, including financial reporting, tax calculations, and bank account integration. Using accounting software allows you to automate many bookkeeping tasks, saving you time and reducing the chances of errors.

Use a Short-Term Rental Bookkeeping Software

For a more tailored solution, consider using Short-Term Rental bookkeeping software. These software platforms, such as the one offered by Clearing, are designed specifically for vacation rental owners and property managers. They offer key features that cater to the unique needs of Short-Term Rentals, such as integration with property management platforms, automation of OTA payout bookkeeping processes, and real-time financial reporting. Short-Term Rental bookkeeping software can significantly streamline your bookkeeping process, allowing you to focus on other aspects of managing your rentals.

Short-Term Rental Bookkeeping - Final Thoughts 

Short-Term Rental bookkeeping requires a unique approach due to fluctuating income, higher turnover,variable cost structure, revenue collection complexities, and unique tax rules. Therefore, it is essential to keep accurate records for tax purposes and financial management of your Short-Term Rental. 

To streamline your bookkeeping process, consider using a generic accounting software, or better yet, a specialized Short-Term Rental bookkeeping software. 

Whichever option you choose, regular updates of your records is crucial for staying organized and making informed decisions. 

Don't let bookkeeping become a burden. 

Sign up to demo our services and let us take care of your Short-Term Rental bookkeeping needs, so you can focus on what you do best - providing excellent accommodations for your property’s guests.

Clearing is a Financial Technology Company, not a bank. Deposit Accounts are issued by Evolve Bank & Trust, Member FDIC. All company names are trademarks or registered trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

Check out other articles