This is such a helpful thread! I've been dealing with the same confusion on my 1120-S. Just to add to what others have said - when you're talking to potential investors, I'd recommend being prepared to discuss both numbers along with context. In my experience, sophisticated investors want to see the full picture: your total income shows your business's revenue-generating capacity, while ordinary business income shows your operational efficiency after expenses. I usually lead with something like "We generated $X in total revenue and had $Y in ordinary business income after all operating expenses." Also, don't forget that investors will likely want to see multiple years of data to assess trends. One thing that helped me was creating a simple one-page summary that shows both figures for the past 2-3 years, along with key ratios like gross margin. It makes the conversation much smoother than trying to explain tax form line items on the spot. Good luck with your investor meeting next month!

Great question about metrics for investors! For gross margin, I actually track it separately from the 1120-S because the form doesn't always break things down the way investors expect to see them. I calculate gross margin as (Total Revenue - Cost of Goods Sold) / Total Revenue. You can usually find the components on your 1120-S, but I keep a separate spreadsheet that tracks this monthly so I can show trends and seasonality patterns. Other metrics investors typically want to see include: - Net profit margin (ordinary business income / total revenue) - Operating expense ratios - Customer acquisition costs (if applicable) - Average transaction size or customer lifetime value The key is showing you understand your unit economics and can explain what drives profitability in your business. Having this data organized before the meeting demonstrates that you're thinking like an investor, not just an operator. One more tip: if your business has any unusual timing issues (like big expenses that only hit certain years), be ready to explain those. Investors appreciate transparency about one-time events vs. recurring patterns.

@Sophia Long - One thing I haven't seen mentioned yet is the impact of Florida's specific tax environment on your decision. Since Florida has no state income tax, you won't have to worry about state-level complications with rental income reporting, which actually makes the rental property classification more attractive compared to states with complex rental income taxes. Also, given Naples' strong rental market, you should easily hit that 280+ day threshold. I manage several properties in the area and most of my clients achieve 300+ rental days annually, especially with both seasonal (snowbird) renters and year-round Airbnb guests. One practical tip: start tracking your days immediately using a simple calendar system. Mark personal use days in red, rental days in green, and maintenance days in blue. This visual system has saved me during audits - the IRS loves clear documentation. With your expected $65K rental income and the substantial deductions available (that $10K+ in HOA fees alone is huge), you're looking at strong positive cash flow with significant tax benefits. The depreciation on your $435K property will likely create tax losses in early years even with positive cash flow, which you can potentially use to offset other income if you meet the active participation requirements. Have you considered hiring a local property management company that specializes in tax compliance? They often maintain the day-by-day records automatically as part of their service.

@Sophia Long - I've been through this exact decision with my Sarasota property and wanted to share some lessons learned. With your $65K expected rental income and only 28 personal use days, you're in a great position for full rental property treatment. The math works strongly in your favor: Your $850/month HOA fees ($10,200/year), 15% management fees (~$9,750), plus mortgage interest, insurance, utilities, and maintenance will likely create substantial deductions. Add in depreciation on roughly $350-380K of the property value (excluding land), and you're looking at potentially $12-15K annually in depreciation alone. Here's what I'd focus on for your Naples property: 1. **Documentation is everything** - Start that day-by-day calendar tracking immediately. I use a simple Google Calendar with color coding: blue for rental days, red for personal use, green for maintenance. This saved me during an audit. 2. **Naples rental market advantage** - The year-round tourist season plus snowbird rentals make hitting 280+ rental days very achievable. I consistently get 320+ days on my Gulf Coast property. 3. **Maintenance day strategy** - Days spent primarily on repairs/maintenance don't count as personal use. Schedule your maintenance visits strategically and document the work done. 4. **Consider the QBI deduction** - With rental property treatment, you may qualify for the 20% Qualified Business Income deduction on your net rental income, which could save you significant tax dollars. The key question: Can you realistically achieve 280+ rental days? If yes, rental property classification will likely save you thousands compared to mixed-use treatment. The depreciation and expense deductions far outweigh the mortgage interest deduction you'd get with vacation home treatment.

I just went through this exact same confusion with my small accounting practice! Those AC and AJ codes had me second-guessing everything until I finally understood they're just compliance confirmations. What really helped me was realizing that Section 448(c) applies to C corporations and partnerships with average gross receipts over $27 million for the prior 3-year period. For most of us small S-Corps, we're nowhere near that threshold, so these codes are essentially the software saying "we verified this large business rule doesn't apply here." Code AC confirms your business can continue using the cash method of accounting (rather than being forced to accrual), and Code AJ confirms you're exempt from the percentage-of-completion method for long-term contracts. Both are benefits for smaller businesses, so seeing these codes is actually a good thing! I've been filing with these codes for the past few years and they've never caused any issues on my personal return. They don't flow through to create additional tax or require extra schedules - they're purely informational for IRS compliance tracking. Your 1040 software will handle them correctly by essentially ignoring them for calculation purposes.

I'm jumping in as another small business owner who was completely mystified by these K-1 codes when I first encountered them! My pottery studio S-Corp generated the same AC and AJ codes, and I went down a rabbit hole of research thinking I'd triggered some complex tax situation. What finally clicked for me was understanding that the IRS requires reporting on these various tax code sections regardless of whether they actually apply to your business. So the software isn't flagging a problem - it's documenting that it checked the rules and confirmed they don't affect small businesses like ours. I think the confusion comes from how intimidating the codes look without context. When you see "Section 448(c)" referenced, it sounds like serious tax law you should understand, but for businesses under $27 million in gross receipts, it's essentially just paperwork showing you qualify for simplified accounting methods. I've filed three years now with these informational codes appearing on my K-1, and my individual returns have processed normally every time. No additional forms, no complications, no audit issues. They truly are just background compliance documentation that your tax software handles automatically.

I'm in a very similar boat this year! I won around $3,400 on BetMGM but I'm down about $2,100 across FanDuel and Caesars. Reading through everyone's advice here has been super helpful. One thing I wanted to add that I learned from my accountant - make sure you're keeping track of the dates for all your gambling activity. The IRS technically wants to see that your losses occurred in the same tax year as your winnings. So if you won money in 2024 but some of your losses were in 2023, you can't use those older losses to offset this year's winnings. Also, I found that taking screenshots of your year-to-date totals from each platform's app or website can be really helpful backup documentation. Some platforms show a clear "net winnings/losses" figure right on your account dashboard that makes it obvious what your position is. The itemizing vs standard deduction calculation is definitely worth running both ways. I used FreeTaxUSA's calculator and was surprised that itemizing actually saved me about $300 more than taking the standard deduction once I factored in the gambling losses. Thanks to everyone who shared their experiences - this thread has been way more helpful than trying to figure this out on my own!

I'm dealing with a similar situation but with sports betting apps - won about $2,800 on Bet365 but down around $1,900 across other platforms. Reading through all these responses has been incredibly helpful! One thing I'd add is that some of the newer sportsbooks are actually pretty good about providing year-end statements if you know where to look. I found that Bet365 has a "Responsible Gambling" section in account settings where you can download a detailed activity report showing all your deposits, withdrawals, bets, and net position for any date range you specify. For platforms that don't make it easy, I've been using the approach several people mentioned - screenshot everything now and create that master spreadsheet. I'm organizing mine by date with columns for Platform, Activity Type (deposit/withdrawal/bet), Amount, and Running Balance. This way I can clearly show the IRS my actual gambling activity vs just moving money around. The tax year timing point that Ethan mentioned is crucial - I almost made the mistake of trying to count some December 2023 losses against my 2024 winnings until my tax software flagged it. Thanks everyone for sharing your experiences - this community is way more helpful than the generic tax advice you find elsewhere online!

Quick question - does anyone know if tax software like TurboTax handles this kind of cash income reporting well? Or is it better to use a specialized self-employment tool?

Just wanted to share my experience since I was in almost the exact same situation last year! I was doing landscaping and pet sitting for neighbors, all cash payments, and made about $3,800. You definitely need to report it all on Schedule C - there's no minimum threshold for reporting income, even if it's just $50. What really helped me was setting up a simple notebook where I wrote down every payment as soon as I got it. Date, amount, what the work was for. Super basic but it saved me when tax time came. One thing that caught me off guard was the self-employment tax. Since you made over $400, you'll owe about 15.3% of your net earnings for Social Security and Medicare on top of regular income tax. It's calculated on Schedule SE. But remember you can deduct business expenses - gas for driving to jobs, tools you bought specifically for the work, even supplies for dog sitting like leashes or treats if you provided them. The whole thing seemed overwhelming at first but once I got through it the first time, it wasn't nearly as bad as I expected. Just keep good records and you'll be fine!