How detailed do you get with tracking? Do you need to show specific clients that came from specific ads? I'm not very organized with this stuff.

You don't need to get super granular with connecting specific clients to specific ad campaigns, but having general data is helpful. I use Facebook's conversion tracking pixel on my website and then keep a simple spreadsheet that shows monthly ad spend, number of leads generated, and clients that resulted. The key is showing that your marketing expenses have a legitimate business purpose and aren't personal. Even basic tracking is better than nothing. When I started, I just asked new clients "how did you find me?" and kept notes. Now I use more sophisticated tools, but both approaches work for establishing the business connection.

The receipts are most important, but I also take screenshots of my active campaigns and save them in a folder. My accountant said receipts prove the expense, but screenshots of the ads help prove they were for business if questioned.

You absolutely cannot ignore it! The IRS receives a copy of every 1099-K, and their systems automatically match them to your tax ID. If you don't account for it somehow on your return, you'll likely get a CP2000 notice (automated underreporting notice) which is basically the IRS saying "hey, we think you didn't report all your income." The correct approach is to report it and then exclude it with an explanation. Most tax software (including CashApp Taxes) has a way to indicate the money isn't taxable income. This satisfies the reporting requirement while ensuring you don't pay taxes on money that isn't actually income.

Thanks for explaining! That makes sense about the IRS matching the forms. So better to report it with the explanation than to trigger an automatic flag in their system. I'll make sure to include it in CashApp Taxes and check that box saying it's not taxable income.

I managed to get Square to issue a corrected 1099-K last year, but it took persistence. The key was escalating beyond the first-level support. I had to specifically request to speak with their tax reporting department. It took about 6 weeks, but they eventually issued a corrected form. In the meantime, I filed my taxes as others here suggested - reporting the 1099-K but indicating the amounts weren't taxable. That way if the correction never came, my taxes were still accurate.

I hadn't even thought about state taxes or the LLC angle. Do you know if forming an LLC changes how depreciation works? And would I need to file a separate business tax return if I create an LLC?

A single-member LLC is typically treated as a "disregarded entity" for tax purposes, so you'd still report everything on your personal return using Schedule E. The depreciation works the same way regardless of whether you have an LLC or not. You generally don't need to file a separate business return for a single-member LLC used for rental property. However, if you elect to have your LLC taxed as an S-corp (which some people do to potentially save on self-employment taxes), then you would file a separate return. But for most small landlords with one property, keeping it simple with a disregarded LLC is usually the way to go.

I used TurboTax Premier last year for my rental and it worked fine. It walks you through all the Schedule E stuff and helps calculate depreciation. Just make sure you keep really good records of your expenses throughout the year. The one time I got confused, I used their live help feature and the tax expert cleared things up quickly.

That's super helpful! I didn't realize I could estimate and amend later. I do have most of my insurance EOBs and could probably get the pharmacy summaries easily. Would bank statements showing payments to medical providers be acceptable if I can't get the detailed receipts?

Bank statements can be supporting documentation, but they're not ideal on their own since they don't show what the payment was specifically for. The IRS wants to know that the expenses were medically necessary and not for something like cosmetic procedures. Your best approach is to use the EOBs from your insurance company - they typically show both what was covered and what you paid out of pocket. Most insurance providers have online portals where you can download a full year's worth of statements. Also contact your pharmacies for medication summaries, which they can usually provide immediately. Between those two sources, you might account for 80-90% of your expenses without much hassle.

I second this! I have a chronic condition too and didn't realize I could deduct all the travel to specialists (400 miles round trip several times a year). Also deducted my CPAP supplies, air filter for allergies (with doctor's note), and even the portion of my utilities for the medical equipment. Added about $3k to my deduction!

That's really interesting! I hadn't heard of a landlord contribution agreement before. Did your brother's arrangement require monthly payments to still be made, or was it entirely offset by the improvements? My situation is more informal - I help with utilities and maintenance but don't pay a set "rent" amount.

The arrangement didn't require full elimination of rent payments. They structured it so a portion of what would have been market-rate rent was offset by the documented improvement costs. There was still some payment happening to establish a legitimate landlord-tenant relationship, but significantly reduced. The key was having everything in writing with fair market values established for both the rent and the improvements. They also took photos before/after and kept all receipts. Their tax professional basically said the most important thing is showing this is a legitimate business arrangement, not just a family helping each other out informally. The more formal documentation you have, the better position you're in if questions come up.

Doesn't the IRS also have some kind of recapture rule if you claim these credits and then move out or sell within a certain time period? I feel like I read something about that when I was considering solar panels.