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Starting next year for the 2022 tax returns your income will be double-reported to the IRS if you get paid via PayPal as both they and AirBnB will report the same income you earned via two separate 1099K forms . Be prepared for the IRS to think you made double what you really made. This applies to other entities that take customer payments on your behalf then pay you via PayPal, such as TripAdvisor and any other service, not just short-term rentals. All this because due to the new Rescue Act, the threshold for reporting has dropped dramatically: Instead of reporting only if you make both more than $20,000 and received at least 200 transactions per year as has been the case for years, due to COVID and the “gig economy” it will now change to just $600/year – and any number of transactions (even just one).
Oh what fun tax returns will be next year, I can hardly wait!
It’s easier than you think. I’ve had years with 15 different 1099s between film production and healthcare. And some of them not only reported the same income twice but with slightly different amounts. As an example, when an agent deducted their commission before sending me a check, from money received from a company sent to him in my name (so both sent me a 1099 but for different but overlapping amounts).
The simple answer is that you deduct the duplicate income as a misc expense and note it (there’s a line for the explanation) as “duplicate 1099 income”. It gets reported and then deducted so it’s all good in the end. Only one extra line required.
A more generalized answer is that you always add up all of the income reported on every 1099 you receive and report that as a single amount of income. And then you deduct your all of your expenses, whether it be service fees (which are ultimately commissions), laundry detergent or duplicate reported income.
Thank JJD, that is what we plan on doing. It’s just that we’ve never had to do any deducting whatsoever for service fees, duplicate income, guest refunds, etc, etc., etc., before because we never had more than 200 transactions (200 bookings) and $20,000.00 in one year, so the change in procedure will be more dramatic for us.
This is the first time we will even be receiving 1099K’s from AirBnB, VRBO, Booking.com, PayPal or anywhere else for that matter. Before we just reported the income we received with no need to report what the guest was charged by the OTA sites since we never received that in the first place. When you advertise on multiple platforms and have PayPal to take into account, that is suddenly a helluva lot more work!
But now that you mention it, sites like AirBnB and VRBO should not be reporting 3% service fees or taxes or guest service fees, etc. anyway right, because they never paid us that. Don’t they just report what we get paid out/receive on the 1099K, or do they actually report what the guest was charged, even if we never see it?
No, that’s not what a 1099-K reports, it does not show what Airbnb paid you, not what you ended up keeping or earning. A 1099-K is specific to payment card transactions and 3rd-party payment transactions. It will show the gross (full) amount of the transactions that were processed through Airbnb (or Paypal, etc) for your SSN or TIN. You will deduct the fees, refunds you paid to a guest, etc as allowable expenses.
For example: If someone books your place for one night for $100 on Airbnb. That $100 goes through Airbnb, a 3rd party payer, so the full $100 is reported. However, the 3% or $3 in this case that Airbnb takes as a service fee will be a deduction, an allowable deduction. No different than any other business expense like utilities or insurance, etc.
If that same guest complains about the construction across the street and you tell them you’re going to give them a $50 refund as a measure of good will, then that $50 that you refunded is also an allowable expense that can be deducted. Again, the refund is a business expense that you will deduct, like utilities, etc.
What is reported on a 1099-k is the full amount of payment processed through them as a 3rd party. It is not what you actually receive from Airbnb.
If this seems overwhelming to you then it sounds like it’s time for you to get a tax accountant or preparer. And you can deduct the fee you pay to the accountant or preparer. Because if this is confusing to you then it will be cheaper for you to pay someone to do your taxes for you and deduct that cost as an expense than it will be for you to do your taxes and do them incorrectly. You also have to account for the increased time that it may take for you to do them, it is likely, overall, less expensive for you to have an expert do them.
Make sure you find someone for your taxes that is familiar with vacation rentals. They should ask you about your average length of stay. And it’s ideal to connect with someone earlier in the year (but after April 15 ) instead of waiting until the end of the year. They can give you better advice and help you keep better records throughout the year if you connect with them ahead of time.
Yes, I get it. I was hoping it was just what we were paid. But since it is a 1099K that covers credit card expenses they can report what they kept as well. Not sure that seems fair because “1099” in general is for income but I had a feeling it might be what you are saying.
Yes, it will be a huge change for me – but also for probably half the population since the threshold is changing so drastically. I think the IRS knowing this will be bombarded with questions and possible taxpayer confusion or error. I will use next year as a learning curve and see how I handle it alone. It’s just that I will have to deduct all commissions and processing fees for several platforms plus PayPal and double income reporting, in addition to all the normal expenses & deductions. It’s not about not understanding, it’s just about how long it takes and how accessible all the information will be because I wasn’t using downloadable .csv spreadsheets from the sites before.
A 1099 really is not for “income” per se. I know I throw that word around too, but it is not accurate. A 1099 reports “money that has been sent you by others”. Generally, it will never be only income because anyone getting sent money from others also has expenses. It it sometimes described as non-employee income or business income, but either way you have expenses that need to be deducted from the amount reported on the 1099. It includes income but it doesn’t describe income in the technical sense.
The service fee is an ordinary expense. Any amount reported more than once, say by Airbnb and Paypal, is a misc expense.
Honestly, even without a 1099 I’ve always recommended that people should report the entire amount of money sent by the 3rd party (i.e. what would be on a 1099) and then deduct expenses. Do it as if you received a 1099. I like to say that the IRS is one of those math teachers that insists on seeing your work. It doesn’t matter now because pretty much everyone will get a 1099 now, but I believe that it will make your taxes easier and more accurate (and less likely to draw attention for an audit).
You’re going to make a sheet for yourself, handwritten with a Sharpie will work. A column for the amounts reported on every 1099, taking note of anything reported more than once. A column (more of a tree really on various other sheets, lol) of expenses. And a column of duplicate reported amounts.
I don’t know if you file Schedule C or Schedule E, or both, but they each have a line specifically for “commissions and fees” so that’s pretty straightforward, so “fair” has nothing to do with it. There is a place that you should (and should have been) reporting those fees. As I mentioned, I have done taxes for 3 different types of businesses and 15 1099s with varying amounts of duplicate reporting and while it is more work than having a 1099, the difference is an hour or maybe two max. It may seem like more from a distance but once you get in there it will come together quickly.
It sounds like you are comfortable doing your taxes so this will not be more than a small bump for you. Add and subtract, that is really it and you’ll be fine.
True, but we have several properties as well. It’s just going to be a huge change.
But that’s my point. What AirBnB or VRBO charge the guests and keep (their service fee, taxes, etc.) and what they keep from us (3%, or whatever it is in your case) is not money we receive or get for others. We never see that money. So in this case it appears that they are reporting money they received and kept as “paid to us”. Seems strange to me. But I guess what you’re saying is that a 1099K is more of a record of every transaction the service makes in our name, and every charge and fee involved in that transaction, even if it did not go to or benefit us.
Schedule C as a sole proprietor business. Is there a benefit in filing Schedule E as well? I thought it was just one or the other.
Exactly. And it so integral to a 1099 that there is literally a dedicated line on both Sched C and E to report “Commissions and Fees” as an expense.
It’s all about documentation so the IRS wants to see all of those details.
It’s not a matter of benefit, either Schedule C is the correct form or Schedule E is the correct form depending on the details.
But it is possible to need to file both if you have different activities. My Airbnb 1099 goes on Schedule C as a business activity but my apartments-com 1099, which is rent/deposits/fees received from tenants, goes on my Schedule E as a rental activity. My point being that either way there is a place to deduct commissions and fees because payments reported on 1099s so commonly include them even though they are expenses and not income.
So then it is as we thought, that Schedule E is only if you are personally renting out a place (house, etc.) you own yourself for extra income, but Schedule C is if you are running an official documented business in which you advertise and serve customers regularly.
That’s strange as sources on the Internet seem to confirm what I just wrote; here’s just a couple:
Schedule E is used for reporting rental income from residential rental real estate, and royalty income. That’s it. SCH C is used for reporting active business income, and that’s it.
and this too:
A Schedule C is for the reporting of business income and or losses, whereas a Schedule E is used to report rental income and or losses. The income that is earned that is reflected on your Schedule C is subject to self-employment taxes, whereas the income reflected on your Schedule E is not.
One is strictly for personal rental income for a property you own and the other is if you are running an official registered business, in this case a rental business.
The stuff you are quoting from the internet is not incorrect. However, your summation or your interpretation of it is incorrect. You are not saying what those quotes are saying. And those quotes are really very over-simplified.
They are not addressing the definitions of any of those things or the many exceptions or even all of the things that are reported on schedule e. I find that most blog articles are very focused on whoever they think their audience so they only address the issues of their audience.
But if you really want an oversimplified answer then it is that income from passive activities goes on Schedule E and not on Schedule C. But that is not enough for anyone to do their taxes correctly, it is only a drop in the bucket, for lack of a better word that’s not a cliche, lol. And it mostly has to do with whether or not you can deduct your expenses and when you can deduct if you can and against what other income they can be deducted against.
Can go on Schedule C or E, it depends on several other factors. It can even go on Schedule F, seriously.
Whether or a not an activity is “officially documented” or “registered” has absolutely nothing to do with how taxes are filed in the US. Zilch. Really, nothing at all.
If you want to go online and find information on US taxes and the IRS, there is really only one website you need to visit:
All of the information there is well-written, easy to read, thorough and most importantly it is accurate and comprehensive. There is no reason to dig around and get information that is often incorrect and almost always doesn’t apply to a vacation rental whether it be a business or a real estate activity.
But if you want “special information”, you will find that if you read the IRS audit training documents.
Well we have an accountant doing the taxes. But we still have to gather all the info and deductions, a lot more deductions next year. But for our situation it appears a Schedule C should be fine unless you can think of a reason it isn’t. We will also read up on the IRS info again more carefully, but I don’t see a reason why Schedule C would not work.
To make it even more complicated, our property is in an S-corp (actually, it’s a wholly disregarded foreign entity that’s an LLC held by our S-corp US business with farmland that we rent out but that has a mortgage against it in order to buy the foreign property) so we have to file corporate tax returns (albeit S-corp returns). But we don’t have to figure out whether we use Schedule C or E!
You’re going to want get a real number. And you’ll need a real number each year because it can vary from one year to the next. Add up all of the number of nights booked and then divide by the number of bookings. If you come up with more than 7 days as an average you will need to file on Schedule E unless you are providing substantial hotel-like services. And substantial services are far more onerous than the material participation standards for the 7 days or less average. Substantial services requires maid service, meals, concierge services and stuff like that during a guest’s stay.
You just don’t want to file on the incorrect form and it could change from year to year and the average stay for the year is what is going to be the main determination between C and E, unless you’re really running a hotel.
You have your stuff figured out, which is actually more complicated than what most hosts have to deal with. It’s not difficult to figure out if a host should be filing on C or E. But somewhere along the way someone started a rumor that there was a choice to be made, that it is more beneficial to file one or the other and that hosts get to decide. But they don’t.
And whether or not C or E is more beneficial depends entirely on the rest of someone’s taxes so it’s entirely individual anyway. But the only time that a host technically has a choice in whether they file C or E is prior to a new tax year and when they can decide to run their STR in a specific way that would support whichever they are “choosing”.
