Are you a short-term rental host wondering whether to file Schedule C or Schedule E? Let’s dive into everything you need to know about using Schedule C for your STR business.
The Schedule C Basics for STR Owners
Schedule C (Form 1040) is used to report income or loss from a business you operate as a sole proprietor. While many STR owners default to Schedule E for rental income, Schedule C might be the better choice depending on your operation.
When to Use Schedule C for Your STR
The IRS typically requires Schedule C if you:
• Provide substantial services to guests (daily cleaning, breakfast, etc.)
• Average guest stays are less than 7 days
• Actively manage your property’s day-to-day operations
• Offer amenities similar to hotels (toiletries, fresh linens, etc.)
Benefits of Filing Schedule C
Self-Employment Tax Advantages
• Qualify for self-employed retirement plans
• Ability to deduct health insurance premiums
• Access to business tax deductions
Business Loss Benefits
• Losses can offset other income sources
• No passive activity loss limitations
• More flexible expense deductions
Business Credit Opportunities
• Access to business credit cards
• Easier qualification for business loans
• Building business credit history
Important Considerations and Consequences
Before choosing Schedule C, consider:
Tax Implications:
• Self-employment tax applies (15.3% in 2025)
• Higher audit risk compared to Schedule E
• Quarterly estimated tax payments may be required
Documentation Requirements:
• Detailed income and expense records
• Separate business bank account recommended
• Proper receipt and invoice management
Potential Red Flags:
• Mixing personal and business expenses
• Unreported income from booking platforms
• Excessive deductions without documentation
Best Practices for Schedule C Filing
Keep Meticulous Records
• Track all income sources
• Document every business expense
• Maintain guest stay duration records
Understand Deductions
• Home office expenses
• Cleaning and maintenance costs
• Furniture and equipment depreciation
• Marketing and advertising expenses
• Property management software
Consider Professional Help
• Complex tax situations require expertise
• Stay compliant with changing regulations
• Maximize legitimate deductions
Common Mistakes to Avoid
Misclassifying Personal Expenses
Forgetting to Report Platform Income
Incorrect Asset Depreciation
Missing Quarterly Tax Payments
Inadequate Record-Keeping
Making the Right Choice
The decision between Schedule C and Schedule E can significantly impact your tax situation. Consider consulting with a tax professional to determine the best approach for your specific circumstances.