Navigating Taxes Setup with Hostaway: Lessons Learned and Tips for Success

When I first started using Hostaway last year, it was anything but smooth sailing. Like many property owners venturing into the world of short-term rentals, I quickly realized that managing a rental business involves a lot more than just listing a property online. One of the steepest learning curves involved setting up and managing taxes correctly—a crucial yet often overlooked aspect of running a successful rental operation.

The Early Challenges

At the beginning, I spent countless hours each week communicating with Hostaway’s customer service to figure out how to configure key settings, such as pricing, cleaning fees, images, and amenities. But the most daunting hurdles were taxes and platform changes.

Let’s focus on taxes for now. Platform fees and their intricacies are best left for another blog.

Understanding Tax Configurations on Different Platforms

After onboarding with a Hostaway representative, I believed I had successfully set up my tax percentages. However, I later discovered that I had overlooked tax configuration on Booking.com. This mistake cost me money for the first three months of reservations on that platform.

Key Lesson: Each Platform Has Unique Tax Requirements

Each booking platform operates differently, with unique user interfaces and tax settings. It’s crucial to familiarize yourself with these systems and ask questions early. Otherwise, you risk losing revenue on every transaction. In my case, the tax configuration I set up on Hostaway only applied to VRBO but not Booking.com.

Challenges with Booking.com Customer Service

Correcting tax settings on Booking.com is a time-consuming process. Customer service representatives must create internal tickets, and you’re left waiting, often for five days or more, to receive a response in the extranet inbox. If you manage multiple listings, the risk increases that taxes will be set up correctly on one listing but incorrectly on another.

Practical Tips for Tax Configuration

1. Do Your Homework: Understand your local tax requirements thoroughly before setting up your listings.

   • In my case, the breakdown included:

     • 6% state sales tax

     • 6% city tax

     • 3.5% transient tax

     • $1.25 per night fee

2. Double-Check Configurations: Ensure tax settings are properly configured on all platforms, including VRBO, Booking.com, and others.

3. Diligence Pays Off: Before requesting changes from platform support, verify your tax information to avoid back-and-forth delays.

Filing Taxes Efficiently

Filing taxes is another tedious task that requires careful management. Here’s how I streamlined the process:

1. Create a Template: I leveraged Hostaway’s reservation tab to export reports each month and integrated the data into a custom template.

2. Calculate Taxes: Use the template to accurately calculate state and city taxes.

3. Submit Separately: Remember, your work isn’t done after the calculations. You still need to log into your state’s website to submit the taxes individually.

Final Thoughts

Managing taxes in the short-term rental business can be overwhelming, especially when using platforms with complex configurations. However, by staying organized, asking questions, and leveraging tools like Hostaway, you can navigate this challenging aspect more efficiently.

If you’re new to short-term rentals, don’t underestimate the importance of understanding taxes and doing diligent setup work. It can save you time, money, and a lot of frustration down the road.

Stay tuned for my next blog on handling platform fees effectively!

File Tax in Paper