Reporting Income on Schedule C - Is there a "How to" Guide?

Well I’m a first year AirBnb host in California; and I’m sorting through this year’s receipts getting ready for taxes. I thought (wrongly of course) that I would be reporting my AirBnb income using Schedule E - Wrong! So when looking at Schedule C (in turbo tax) I’m reading the questions, topic areas, etc. used to help me fill in the blanks - the whole time I’m trying to understand how this relates to operating my little operation. The examples just don’t FULLY relate (that’s the engineer in me looking for a 1 to 1 connection).

So here’s my question(s): Is there a guide that provides the link I’m looking for (i.e., cleaning expense go here, AirBnb fees go here, utilities go here, internet goes here, etc.)? Also, does anyone have a sample Sch C already filled out?

Thanks in advance!

Well here is my two cents. Schedule C or Schedule E is apparently a grey area. My CPA would not let me file the Schedule C. You have to actually be a real B&B and meet certain criteria to be eligible. So she said NO.

I think I was placed in a worse tax position with schedule E but there was no arguing with her. NO schedule C for me.

But perhaps others here may be more familiar with it.

Thanks for your response “Kona”. There is some points of disagreement on the Sch C vs. E issue out there; but the consensus out there is the vast majority of us are Schedule C.

I’m hoping there is a How To Guide out there that provides the info I’m looking for.

Have a great day!

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I certainly have to do a Schedule C, it turns out, and I am not really happy about it. I would much prefer a Schedule E for many reasons. On a Schedule C you will pay a lot in SS/Med taxes, both employee and employer contributions which is equal to 15.3% of your earnings. The income on a Schedule C is counted if you ever need disability, reducing your monthly amount.

I materially participate in the management of my rooms. I am still searching for the loophole that @konacoconutz’s accountant has used.

I have had at least one Schedule C for my entire life. In 1986 I bought my first computer and started to keep my funds, such as they were back then, categorized in electronic form. Over the years, the programs have changed but taxes haven’t much. You need to set up categories that line up with the Schedule C line items, and then determine which expenses go into which line item. It is much like the old envelopes that some people’s grandmothers used. One for rent, one for consumables, one for marketing, one for professional services, etc.

From age 16 until I was about 38, I didn’t buy a single thing that wasn’t a tax deduction. They can be your friend if you buy wisely and truly track your receipts. The end of the year is a great time to build a chart of accounts for you business. It doesn’t need to be electronic, but why wouldn’t you? You can do the envelopes, maybe one per month. At the end of the month, run a tape, staple it to the envelope and at the end of the year, add the 12 envelope totals per category.

This isn’t hard stuff. It is just about being careful and meticulous

You can hire someone to help you determine what your categories are, but, the forms are free. Download one and dive in!

Thank you for the response smtucker. I certainly wish I could use Schedule E as well; as I too am not enamored with paying the self employment taxes. But, a business is a business; and the rules are the rules. This is our first business and I thought we would be using Sch E; so I was caught off guard when Sch C came knocking at my door.

It’s funny that you mention the envelopes; as I’ve got January through December lined up on my dining room table at this moment. I’ll take your advice and categorize - I’ve found several resources that I believe will be helpful.

Thank you for your insight! Have a great day.

She claimed it was only allowed if I served breakfast and did maid service every day. I really had counted on the C so I had kept the meticulous records you had mentioned. I file a schedule C and have every year for at least the past 25 for my writing business as a self employed individual.

To the OP. Can you schedule a visit with a CPA? It won’t cost all that much and can really help you save money.

Hi again Kona. Yes, I will be scheduling a visit with a CPA to get this all sorted. It’s just that I’ve always done my own taxes; and I really wanted to fully understand where this was all going before I saw the professional. It’s the engineer in me I guess.

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@konacoconutz I know that your accountant has appeared here occasionally, but I have to disagree with her. I am meeting with a CPA this month and will get her take on all of this. Everything I have read in the IRS regulations indicates that short term rentals are a Schedule C income. One of the reasons I started an AirBNB was to have income on a Schedule E, so I really want that to work for me. Will keep you, and the rest of the forum updated. This is a really important topic.

Yes, find out. It’s a super grey area. I don’t think it’s well defined, nor do I think the IRS has caught up the the STR phenomenon.

It’s funny how you guys want the E and I want the C!

One thing to keep in mind about too, is that when you file the C, and if you ever want refinance, or say do a modification, (submitting your tax returns) the bank or your mortgage holder can readily see you have been doing Air, and they don’t like it. I’ve heard of rare cases where someone’s loan terms got changed because they were now deemed to be doing commercial things with a residential property, so maybe an E isn’t all that bad.

They will see a Schedule E as well. It is still part of your tax return. I have refinanced about 8 times while making income on a Schedule C, without any W2 income, so this certainly doesn’t worry me. Being self employed ALWAYS makes loans more complicated. Part of the deal. Anyone who can have the term of a mortgage changed based on income streams has a predatory loan, which I would suggest of anyone.

That said, I still would prefer a Schedule E.

I liked Sch E because I could depreciate the house (the income generator). Will I be able to still do this under Sch C?

Yes but on the E, it doesn’t make the distinction between LTR and STR. LTR would not be considered “commercial” in the same way as STR.

Maybe if you have a home office. Ask your CPA!

I do not want to depreciate my home at all!!! I take a “home deduction” already but never take the depreciation. This changes the cost basis so that you are far more likely to pay capital gains when you sell your home. There is a lot to consider, isn’t there?

My CPA uses Schedule E for our Airbnb income. According to this attachment, it looks like Schedule E is correct for virtually all Airbnb hosts. There is no question in @konacoconutz’s case because she doesn’t provide breakfast.

I would not want to depreciate my house because if you sell it you have to recapture the depreciation. Also, I believe that if you’ve depreciated your property you are treating it as a commercial property and cannot take advantage of the $250,000.00 for a single person/$500,000.00 for a couple capital gains exemption. This would mean that you would have to buy a like commercial property or pay capital gains tax on the gain.

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@EllenN The question is, what is a substantial service? Is me placing food in their rooms a substantial service? I absolutely do nothing else while they are in residence. [Gosh, do I want to use a Schedule E.]

I want to note. I have no problems with paying taxes. I think that is part of our social contract. But, I have my own reasons to want to use a Schedule E.

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Substantial services are listed on the bottom of the first page of the attachment. The only meal I provide is breakfast. I don’t clean the guest room during the guests’ stays. I will help the guests’ make reservations if they are having a difficult time, but I don’t believe this counts as concierge services. I don’t offer them transportation unless I really like them and I’m going in the same direction. I’m confident that Schedule E is correct for Airbnb hosts unless they are running a motel/hotel and advertising via Airbnb.

Page 16 of this report by Ernst and Young which was commissioned by Airbnb also says that most Airbnb hosts should use Schedule E.

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@konacoconutz and @EllenN

Thank you thank you thank you for hanging with me while I navel gazed. This is the best news I have had in quite a while. With these two documents I can reasonably defend filing a Schedule E. I have my chart accounts set up for a Schedule E, but can easily reconfigure that to match up with the Schedule E. This may be the first time I go to bed with a glimmer of hope in weeks and weeks and weeks.