11 Just a word of caution from someone who went through an audit on exactly this issue. The IRS agent was primarily focused on the "material participation" test and whether I had documentation to prove how much time I spent on various services. Even though I was providing what I thought were substantial services, I couldn't prove exactly how many hours I spent on each task. The IRS ultimately reclassified my income from Schedule C to Schedule E because I lacked adequate time logs. Now I use a time-tracking app to document EVERYTHING I do related to the rental - from answering guest messages (screenshots with timestamps) to shopping for supplies (with receipts) to doing property maintenance (with dated photos). If you're serious about claiming this as self-employment income, start documenting your time meticulously RIGHT NOW. It made all the difference when I was audited again the following year.

This is such a helpful discussion! I'm in a similar situation with my mountain cabin rental and have been going back and forth on this exact issue. One thing I haven't seen mentioned yet is the impact of local regulations on this classification. In my area, short-term rentals are required to have 24/7 on-site management response, daily safety inspections, and we must provide certain amenities by law. These regulatory requirements essentially force us to provide what could be considered "substantial services." I'm wondering if anyone has had success using local STR regulations as supporting documentation for self-employment classification? It seems like if the government is requiring you to provide hotel-like services, that could strengthen the argument that you're running an active business rather than just renting property. Also, for those tracking time - I've found that breaking down services into categories helps: guest communication, property maintenance, cleaning/turnover, guest services (recommendations, problem-solving), and regulatory compliance. The IRS seems to view guest-focused services differently than property maintenance when evaluating the substantial services test.

This is an incredibly eye-opening post that everyone dealing with tax issues needs to read. The breakdown of how these companies operate - especially the "investigation phase" that's literally just ordering transcripts you can get for free - is shocking but not surprising. I'm particularly disturbed by the targeting of vulnerable populations you mentioned. It's predatory to specifically go after elderly people, veterans, and those already struggling financially. These are exactly the people who can least afford to waste thousands on services they could handle themselves. One thing I'd add for anyone reading this: if you're scared of dealing with the IRS directly, remember that ignoring the problem or paying these inflated fees to middlemen only makes things worse. The IRS actually has taxpayer advocates and offers free resources through VITA programs for lower-income taxpayers. Has anyone here successfully handled their own tax resolution after initially considering one of these companies? It would be helpful to hear some success stories to encourage others to take the DIY approach rather than getting scammed.

This is exactly the kind of insider information that needs to be shared more widely. As someone who received one of those scary IRS notices last year, I can confirm how vulnerable and desperate you feel in that moment. The relief companies prey on that fear perfectly. What really strikes me is how the entire business model is built on keeping people in the dark about what they can do themselves. The fact that ordering your own tax transcripts takes 5 minutes and is completely free, yet they charge hundreds for this "investigation phase" is particularly egregious. I'm curious about one thing - do these companies ever actually deliver good results for anyone, or is it basically a scam across the board? I imagine there must be some success stories they point to, even if they're rare exceptions rather than the norm. Also, for those reading this who are currently dealing with tax issues - don't let fear paralyze you into making expensive mistakes. The IRS has payment plan options, hardship programs, and yes, even real humans who will work with you. The sooner you address it directly, the less you'll end up paying in penalties and interest, and the more money you'll keep in your own pocket instead of lining these companies' coffers.

Sorry if this is a dumb question, but I'm confused about the ITIN application. Can I just apply for an ITIN for my spouse now, before tax season, or do I have to wait and submit it with my tax return?

Just wanted to add a few practical tips from someone who went through this exact process last year with my husband working in Canada: 1. **Document organization is key** - Start gathering all your spouse's foreign tax documents, pay stubs, and bank statements now. You'll need certified translations if any documents aren't in English, which can take time. 2. **Consider the timing carefully** - ITIN processing typically takes 7-11 weeks, so if you're filing jointly and need that ITIN, plan to file your return by early February at the latest to avoid extension issues. 3. **Double-check exchange rates** - Use the IRS's published annual average exchange rates for currency conversion, not daily rates. You can find these on the IRS website under "Yearly Average Currency Exchange Rates." 4. **Keep detailed records** - The IRS may ask for additional documentation later, especially for foreign income reporting. I kept copies of everything including bank statements showing the original currency amounts. One thing that surprised me was that even though we qualified for the Foreign Earned Income Exclusion, we still had to report the income first, then claim the exclusion. The forms can be confusing but it's totally doable with patience! Good luck with your filing - the first year is always the most complicated but it gets easier once you understand the process.

One quick tip - make sure you're using the correct form! The IRS changed things a few years ago, and now most contractor payments should be reported on Form 1099-NEC rather than 1099-MISC. The 1099-MISC is now primarily for rent, royalties, and certain other payments, not for services provided by independent contractors. This tripped me up last year and I had to redo all my forms. The 1096 transmittal form is still used for both types though.

Just wanted to share another option that worked for me in a similar situation - many local CPA offices keep a stock of official IRS forms during tax season and are often willing to sell them to small business owners. I called around to a few accounting firms in my area last year when I was in the same bind, and one of them sold me the exact forms I needed for just a few dollars above cost. Also, if you do end up going the electronic route through any of the services mentioned here, make sure you still get signed W-9 forms from your contractors if you don't already have them. The IRS requires you to have these on file regardless of whether you file electronically or on paper, and they can request to see them during an audit. One last thing - if you're paying family members, double-check whether they actually need 1099s. If they're working as employees rather than independent contractors, you'd need to handle payroll taxes differently. The IRS has specific criteria for determining worker classification, and family relationships don't automatically make someone an independent contractor.

I think everyone's missing something important here - most businesses should be e-filing 1096 and 1099 forms anyway. If you're filing more than 10 information returns, you're required to e-file. The IRS has been pushing hard to get everyone to e-file these forms.

Just want to add that if you do decide to order forms directly from the IRS, make sure to double-check which version year you're ordering! I made the mistake last year of accidentally ordering 2023 forms when I needed 2024 forms for my filing. The IRS website defaults to the current tax year, but it's easy to miss if you're not paying attention. Also, for anyone considering the electronic filing route - it's definitely worth looking into even for smaller businesses. The IRS FIRE system (Filing Information Returns Electronically) is free to use and can save you from dealing with paper forms altogether. You still need to provide copies to recipients, but you can print those yourself on regular paper.