Q4 Planning for Short-term Rentals: Maximize Profits and Ace Tax Planning

Working ON your short-term rental business not just in it is a Boss-move you need to make

Its October - which means we're hitting the final stretch of the year. Yes! Quarter 4, that magical time when your business plans meet reality and tax considerations loom large. I'm a big believer that an hour of planning saves hours of work..frustration...surprises. No, the best laid plans don't always go as planned but that doesn't mean we shouldn't set aside the time to do the work. And for all small business owners (psst - that includes YOU - a short-term rental business is precisely that) this is a great time to hit pause for a moment!

What Does 'Working ON Your Business' Even Mean?

Look, no one gets into the short-term rental business thinking they'll become an expert in tax planning, cash flow analysis, or legal compliance. Yet, these are critical aspects that can make or break your entrepreneurial dreams. The idea is to shift your perspective from being a busy worker bee to being the strategic mastermind of your empire.

Where Are You Now?

Before you even think about tax planning for Quarter 4, let's do a quick recap:

Financials: How's the revenue looking? What about expenses? Are there any patterns or trends worth noting? Maybe a shoebox full of receipts not even logged so you aren't sure? I've been there, and lots of others too - so don't feel bad if that's you. Just commit 10 minutes a day for a few days and you'll find yourself unstuck and feeling great having a better grip on your profit and loss statement.
Customer Feedback: Did guests leave feedback that you could use to improve? Part of my quarterly planning is always to see the forest for the trees, including checking my reviews - and my competitors, to make sure I keep my thumb on the pulse.
Maintenance: How's the property? Anything that needs to be fixed before the winter season kicks in? I usually schedule a trip to my properties this time of year.

Let's Talk Tax Planning

Quarter 4 is your last chance to get your finances in shipshape, and let's be real, we all love a loophole or two. In fact, while many jump into short-term rentals for the return on investment or cash-flow - or maybe just the lifestyle perks, the reason so many wealthy people invest in real estate is all about the tax benefits! If you are new to this, I recommend the book - Tax-Free Wealth by Tom Wheelwright, CPA (of the Rich-Dad Advisors) And the disclaimer before I go too far: I'm not a tax advisor, planner, nor am I in anyway qualified to give you tax or financial advise. So, talk to YOUR tax professional. So with that disclaimer out of the way, let's dive into it:

Tax Deductions

Home Office: If you've been managing your short-term rental from a dedicated space in your home, that could be tax-deductible.
Maintenance and Repairs: Any repairs or maintenance carried out on the property can typically be written off. Keep those receipts!
Travel Costs: If you travel to and from your property for business-related tasks, log those miles! You'll want to make sure you also had your beginning of the year milage (I usually take a photo and stick in in my file) and set a reminder to do the same on the first of the new year so you have an accurate record of total miles for the vehicle(s) you used for business purposes - and document those miles along with purpose!
Payroll. Did you hire your kids? Make sure you've documented their work and pay (check out THIS blog to learn more)
Bonus Depreciation: Okay, so tax benefits of a business is the ability to depreciate the assets and current tax rules allow that to be accelerated. Why? Well, cash in hand is - in many peoples opinion, better than delaying that into the future but it depends on many factors. You can learn more about this HERE.

Accounting Method: Cash or Accrual?

Now's the time to consult with your accountant about whether the cash or accrual accounting method makes the most sense for your business setup. This decision affects your taxable income; I started with cash and have stayed that way since that feels more in tune with the flow of the business.

Make a Tax Calendar

Mark down every single tax deadline between now and year-end. Trust me, the last thing you want is to pay penalties on top of everything else. Business taxes are filed BEFORE personal - we nearly missed it our first year because sole proprietorships pass through to personal taxes but when we formed a partnership for one of our properties - our business taxes were due a month sooner!

Your Quarter 4 Action Plan

Book an Appointment with Your Accountant: Like, yesterday. Your accountant will help you nail down every deduction and tax advantage possible. Make sure your books are up to date so you can do that analysis and make any last minute changes to optimize your position vis a vie taxes!
Review Your Business Structure: Are you operating as a sole proprietor, an LLC, or some other entity? Your structure affects your tax implications - and tax deadlines!
Capital Expenditures: Need to make any big-ticket purchases for the property? Do it now to write it off this year. Keep in mind Bonus Depreciation is 80% of the total investment for 2023; it falls to 60% in 2024 barring any changes!
Review and Update Rates: The holiday season could offer a chance for premium pricing. Look at your rates and adjust accordingly. Even if you use software, software is a TOOL. You tell it what to do. This is a time to look ahead - even in beach towns there is often an uptick in bookings over the holidays and if you are in an outdoor oasis for snow, well - high season is around the corner! Review your competition, supply (I track the total number of rentals in the market at least quarterly plus the number of offerings with the same bedroom count along with a number of other data points on a quarterly basis.)

Final Thoughts

Don't let Quarter 4 catch you off guard. By taking some time now to work ON your business, you're not only prepping for the end of this year but setting the stage for an even more profitable next year. Your future mogul self will thank you. 🌟

Interested in learning more about Short-term Rental Investing? I have a great getting started guide - check it out HERE

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Not finding what you need? I offer 20 minute calls - no strings, to help you answer your trickiest questions. Some folks go on to work with me - sure (hey, I have to make a living) but some folks just need 20 minutes and I'm happy to connect and learn from you, with you, and help you too. Book a time HERE.

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Hey Boss! I'm Kate, owner/founder of The CEO Host. If you are interested in taking a leap into short-term rentals - or have some questions about your existing business, my goal - passion, and career, is to help YOU succeed. I've coached hundreds of folks getting started or looking to optimize, analyzed more deals (and duds) than I could count, completed thousands of hours of education and training, attended conferences... So don't be shy. A good CEO knows to bring in expert help - and that's what I'm here for! Lets HOP ON A CALL and chat!

P.S. Got questions? Need more guidance? Feel free to reach out. We're in this together!