Mistake #1: Revenue Streams Misclassification

Hotels bring in revenue from multiple sources. Room rentals are the bread and butter for hotels. But food/beverage services, event bookings, and conferences bring in good revenue, too. Now, the problem is that these different revenues are taxed differently. If your in-house accountant misclassifies these revenues, there can be a risk of incorrect tax filing and underpayment of taxes.

Mistake #2: Incorrect Depreciation Calculation

All hotels own massive amounts of real estate. Along with real estate comes furniture, fixtures, and equipment. Now, the IRS allows hotels to deduct certain depreciation on these assets. The idea is to bring down the tax burden on hotel businesses. But if your local tax accountant makes a mistake in depreciation calculation, it cuts both ways! Either you will miss out on your deductions, or worse, you’ll attract tax penalties.

Mistake #3: Occupancy and Room Tax Issue

It’s possible that you might have heard about “bed tax” or occupancy tax. The problem is that some jurisdictions impose this tax while some don’t. This tax is levied on the guests. But the hotel has to remit this tax to the government. If your hotel business fails to do so or if you underpay this tax, it’ll bring you on law enforcement’s radar. You might end up paying hefty penalties, along with the interest. Most jurisdictions impose an occupancy tax on hotel rooms. This tax, also known as a “bed tax,” is typically passed on to guests but must be remitted by the hotel to the local government. Failing to accurately calculate or remit this tax can result in hefty penalties and interest.

Mistake #4: Missed out on Employee Benefits Tax Deductions

If you own a hotel, you’ll probably have a large workforce. Authorities mandate that these workforces must get multiple employee benefits. For example, hotels have to provide healthcare, retirement plans, and employee meals. This is quite a big expense. But there is a silver lining here to hotels. They can claim tax deductions on these benefits. And considering the size of workforce and variety of benefits, the deduction is often significant. Unfortunately, hotels miss out on multiple such potential tax deductions due to the sheer volume and variety of tax benefits. Result? Hotels end up paying a lot more tax than they have to. This brings down their bottom line.

Mistake #5: Overlooking Sales Tax on Ancillary Services

Let’s say your hotel offers some additional services. This could be anything like catering or even laundry. In some regions, local governments charge sales tax. In 15+ years of experience in hotel accounting and taxation, we’ve come across multiple hotels that overlook this tax collection and remittance. In fact, almost 50% of hotels make this tax mistake & this creates legal troubles for hotels.

Mistake #6: Lodging Tax, Occupancy Tax, Hotel Tax, and Tourist Tax Compliance

Hotels have to deal with multiple, location-specific taxes. If any hotel fails to comply with these taxes, they have to face legal action. For example, hotels have to pay Lodging Tax. This is the tax on rooms for short-term stays. Then, some regional governments levy Tourist Tax. Hotels have to collect this tax from the tourists and remit it to the local bodies for overall regional development. Then there is the Occupancy Tax. These are just a few examples, to be honest! Now, dealing with these different taxes is not easy, to say the least. Some hotels prefer to manage their taxation on their own instead of outsourcing it to the hotel tax experts. This creates a plethora of problems like tax miscalculation, compliance failure, and, ultimately, legal troubles.

Mistake #7: Payroll Taxes Underreporting

Hotels always have a mix of employees. Some of them are on seasonal contracts, some are full-time while some are part-time. So, their payroll tax calculations are a headache. Reason? Well, workforce size varies along with wage types! Some get tips, some get overtime, and some get bonuses. All these wages are taxed differently. So, it’s obvious that accurate tax calculation demands a team of hotel taxation experts, along with bookkeeping experts. So, many hotels make mistakes when calculating these taxes.