What happens re bookkeeping if you refund a guest?

I had a guest who cancelled a 14 day booking after my moderate full refund cut-off. I got paid out what I was supposed to receive. I got a 4 day booking for part of her cancelled dates and was thinking of refunding the cancelled guest something. I know Airbnb will take it out of my future payouts, but it seems like that would screw up the accounting re service fees, taxes, etc., not to mention what I show the tax dept.

Is there something I should be aware of concerning this?

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When you say taxes, I’m not sure if you’re talking about occupancy taxes that you have to pay directly and/or yearly income taxes and I also know that we’re not filing the same tax forms but I imagine they are not so dissimilar and this will apply, in a mathematical sense, to both/either:

There are 2 general income tax scenarios, I don’t which way you do it so I’ll explain for both.

Scenario 1: You report total receipts: You report the total of all receipts (as a positive number) that come through Airbnb for your account (payouts +service fees+ taxes) on your tax form and then you deduct the service fees and taxes as a business expense.

1—Deduct the amount of refund that you provide your guest from your total income as a business expense. We have a line called “Sales Returns and Allowances” on our Schedule C so that’s where I deduct refunds I’ve given but it could instead go under a different category of business expense, whatever seems applicable (I don’t know what your form looks like). e.g. If you refund your guest $100 then deduct $100 from your income as an expense.

2—Since you’re already deducting all of the service fees and taxes in this scenario you don’t need to worry about them because they are accounted for, as a total, in your business deductions. (The part of the service fee that you paid on the refunded amount is already going to be deducted with the rest of them).

3— The one and only thing that will be different for you in this scenario is that you need to deduct the amount of refund you gave from your reported income so that you don’t pay income taxes on it.

Scenario 2: You’re only reporting income: You only report the actual amount of your actual payouts as your income (which it is). The service fees and/or taxes are not accounted for on your tax form at all (the don’t have to be deducted as an expense because they aren’t reported in your income anyway).

1— (same as the other scenario) Deduct the amount of refund that you provide your guest from your total income as a business expense. We have a line called “Sales Returns and Allowances” on our Schedule C so that’s where I deduct refunds I’ve given but it could instead go under a different category of business expense, whatever seems applicable (I don’t know what your form looks like). e.g. If you refund your guest $100 then deduct $100 from your income as an expense.

2— Even though you aren’t reporting or deducting service fees and/or taxes (because they are not income and you’re only reporting income) in this scenario, you do want to deduct the apportioned amount of service fees and/or taxes that you paid on the refund amount you gave your guest. This is because that apportioned amount is now a business expense because you paid it on money that you did not keep (so it wasn’t income). e.g. If your total payout is $200 and you refunded, 50% of that, $100 then you can also deduct 50% of the service fee that you paid to Airbnb for the reservation. If the fee was $12 then you will deduct $6 of it along with the $100 you refunded, to take a total of $106 as a business expense from your reported income.

I’m making the assumption that taxes shown on your Airbnb spreadsheet are not charged to you as they aren’t to me (they are shown on the spreadsheet but the guest paid them, I didn’t), but I’m not sure if it’s a safe assumption. If for some reason Airbnb deducts taxes from your payouts then treat them as you would service fees.

Sorry, this is so long, I hope it’s not too messy. Ultimately you don’t want to pay taxes on the money you refunded/didn’t keep or on the service fees and/or taxes that you paid on the amount you didn’t keep so you will deduct them as applicable to how you usually deduct business expenses on your income taxes.

If you’re paying additional occupancy or city tax directly to your local government then you should only pay them those taxes on the amount you kept and not on the amount you refunded.

Thank you for the info. I’ll try to make some sense of it, and it may help- the problem is, none of that really works for me, as taxes in Mexico are handled in a very weird way, which even my Mexican accountant is a bit bamboozled by, even though she handles lots of Airbnb hosts’ taxes and manages a couple herself.

For Mexican taxes, Airbnb charges the guest 16% VAT and 4% occupancy tax. Then they release half the VAT and all of the occupancy tax to me (which I am responsible for submitting), withholding half the VAT and all of my income tax owing on a booking. I cannot deduct any expenses from my earnings- all I can deduct is the amount of VAT charged on my expenses from the amount of VAT I owe.
To top it all off, all of this accounting goes through a third party called Facturify, which issues statements for each booking. And they are currently showing the amount of VAT and Occupancy tax, but are not showing the income tax they are withholding, which my accountant says is incorrect- it should be shown.

I used to do all my Mexican taxes online myself, for my Airbnb and my upholstery business, but Mexico revamped their tax system at the beginning of 2022, and I had to hire an accountant because it became so incredibly complex.

But the info you provided will help me when it comes time to do my Canadian taxes, where I also claim my Airbnb income, and where I can deduct all my expenses, unlike in Mexico. (What Mexico did was give a really low income tax rate-4%- instead of allowing people to deduct expenses- don’t ask why- nothing makes sense here)

The simple answer is do not refund the guest who cancelled unless you promised a refund.

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Well, of course I have no obligation to refund. But that has nothing to do with my question. She didn’t ask for a refund, but I don’t feel that great about keeping someone’s $ if I get the cancelled dates booked.

Send me the money:). Lol

RR

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It is too much effort to be complicating this. Just stick to your policy and it is finalized.

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They might have had travel insurance… or they should have.

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I think we should all assume that guests have travel insurance, because it is not our responsibility to insure their trip.

RR

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You could just send them money through Venmo or PayPal and not impact your books. Assuages your conscience without the tax hassle.

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I thought that @muddy was wanting to use Venmo or Paypal and that’s why she was asking about the taxes. Otherwise, if she does it through the resolution center, it will all be adjusted within the system as long as she chooses the reason “refund for cancelation”. I’m not sure about the Mexican taxes but the amount for her payouts and the service fee will be adjusted for the partial refund so there’s no reason to worry about the taxes. I’ve done it both ways, just depending on what the guest wanted.

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Yes, that’s what I wanted to know, thx.