This thread has been incredibly helpful! I've been struggling with this exact issue for my tax preparation. I have three rental properties that I actively manage (tenant screening, minor repairs, property showings) and was completely confused about whether this "active" management meant I should use Schedule C. Based on the discussion here, it's clear that Schedule E is the right choice for my situation since I'm managing my own investments, not providing services to other property owners. The clarification about avoiding self-employment tax while still being able to deduct all legitimate expenses is huge - I had no idea I was potentially overpaying taxes by considering Schedule C. One follow-up question: I sometimes hire contractors for bigger repairs on my properties. Should I be issuing 1099s to contractors who do work on my Schedule E rental properties, or is that only required for Schedule C business activities? I paid my handyman about $3,200 last year and want to make sure I'm handling the reporting correctly. Also, @Emily Parker, your point about QBI deduction eligibility is something I hadn't considered at all. I'll definitely need to look into whether my rental income qualifies - that 20% deduction could be substantial on my rental profits.

This is exactly the kind of confusion I had when I first started with rental properties! The key distinction that helped me understand it was thinking about WHO you're providing services to. If you're managing your own rental properties (even very actively with repairs, tenant screening, marketing vacancies, etc.), you're managing your own investments - that's Schedule E. The income isn't subject to self-employment tax, and you can deduct all ordinary and necessary rental expenses. Schedule C would only come into play if you were providing property management services to OTHER people's properties as a business, or if you were a real estate dealer (buying/selling frequently rather than holding for rental income). One thing I learned the hard way - make sure you're tracking your expenses properly on Schedule E. You can deduct a lot more than you might think: advertising for tenants, legal fees, travel to properties, even a portion of your home office if you use it exclusively for managing your rentals. Just keep good records and receipts for everything. The material participation rules that you mentioned are more about passive activity loss limitations - they don't change whether you use Schedule C vs E. Even if you don't materially participate, rental income still goes on Schedule E (it just might be subject to different loss limitation rules).

Based on all the excellent analysis in this thread, you're in a much stronger position than you initially realized. The combination of capital account growth, increasing distributions, exploding guaranteed payments, and AMT adjustments all point to significant share appreciation. One additional strategy to consider: request a formal appraisal from a certified business valuator. Many operating agreements require this for disputes, and even if yours doesn't, suggesting it often makes lowball buyers reconsider their offers. The cost (typically $3-8K) might seem steep, but it's usually worth it for investments of any substantial size. Also, document everything in writing. Send a formal response declining their initial offer and requesting the company's methodology for determining "no appreciation" over 5 years of growth. Their response (or lack thereof) will be telling. Given the pattern of earnings manipulation you've uncovered, you might also want to consult with a securities attorney who specializes in closely-held companies. If they've breached fiduciary duties to minority shareholders, you may have additional leverage beyond just the valuation dispute. Stay strong and don't let them pressure you into a quick decision. The urgency is theirs, not yours.

The fiduciary duty issue you're asking about is significant. In closely-held companies, majority shareholders and management typically owe minority shareholders duties of loyalty and care. When they manipulate earnings through excessive guaranteed payments while simultaneously offering to buy out minority shareholders at artificially depressed values, that can constitute a breach of these duties. Specifically, they may be violating their duty of loyalty by self-dealing (paying themselves excessive compensation) and their duty of fair dealing (making lowball offers based on the artificially depressed earnings they created). Some courts have also found that minority shareholders have a right to "fair value" in buyout situations, which should reflect the company's true economic performance. Look for language in your operating agreement about "fair dealing," "good faith," or "fiduciary duties." Even if it's not explicitly stated, these duties are often implied by law in partnership and LLC structures. Document the timeline carefully - when did the guaranteed payments spike relative to when they started approaching former employees? If there's a clear pattern of earnings manipulation preceding buyout offers, that strengthens your case significantly. A securities attorney can also review whether you have information rights under your state's LLC/partnership laws that the company may be violating by refusing to provide proper financial disclosure for valuation purposes.

I think people are overcomplicating this. If you're just casually trading skins and occasionally making a small profit, it's hobby income. Report it on Line 8z of Schedule 1 as "Other Income" and call it a day. Only need Schedule C if you're truly running this as a business with regular, consistent activity aimed at making profit.

Based on what you've described, you're definitely running this as a business activity since you're systematically buying skins at below market value with the specific intent to resell for profit. The IRS doesn't distinguish between digital and physical goods when it comes to business income. You'll want to use Schedule C to report this activity. Track your gross receipts (all sales - so yes, that $2,000), then subtract your cost of goods sold (what you paid for the skins) to get your net profit. That $300-400 profit will be subject to both regular income tax and self-employment tax. Pro tip: Keep meticulous records going forward. Save screenshots of all transactions, PayPal receipts, and Steam transaction history. Also consider tracking any business expenses like platform fees, internet costs for trading, or storage costs if applicable. The IRS loves detailed documentation, especially for newer types of businesses like digital item trading. Since you're already 6 months in, I'd recommend gathering all your transaction history now before it becomes an overwhelming task. Most platforms let you export your transaction data, which makes record-keeping much easier than trying to reconstruct everything later.

Wait, I just realized something... did you account for depreciation recapture? If you've been taking depreciation deductions on the rental property (which you should have been), then part of your gain might be subject to depreciation recapture at a 25% rate rather than the lower capital gains rates. This gets reported on Form 4797.

Great question! I went through something very similar with my LLC property sale last year. Here's what I learned: you're NOT paying capital gains tax twice. The $53k gain from the property sale flows through to you and your partner based on your ownership percentages (50/50 in your case). Each of you will report $26.5k of capital gain on your personal tax returns via Schedule D and Form 8949. The key thing to understand is that your withdrawal of $26.5k isn't a separate taxable event - it's simply you taking out your share of the proceeds. Your original $15k investment becomes part of your "basis" in the LLC. When you withdraw $26.5k, you're essentially getting back your $15k investment plus your $11.5k share of the gain, but you only pay tax on the gain portion once. The LLC will issue you each a Schedule K-1 (Form 1065) showing your share of the capital gain. Make sure to also consider if you've been taking depreciation deductions on the property - if so, you'll need to account for depreciation recapture on Form 4797, which gets taxed at 25% rather than the typical capital gains rates.

This is such a common confusion for new marketplace sellers! I went through the same thing when I started my online business. Here's what I've learned after dealing with this for a few years: Your gross receipts on Line 1 should be the total amount of actual sales you made to customers, minus any refunds or returns. So if your marketplace report shows you had $15,000 in sales but $500 in refunds, you'd put $14,500 on Line 1. The important thing is to NOT subtract any of the fees or expenses from that gross receipts number. All those marketplace fees, shipping costs, payment processing fees, etc. get reported separately in the expenses section of Schedule C. This gives the IRS the complete picture of your business activity. I'd also recommend keeping detailed records of what each fee category represents - some go on Line 10 (commissions and fees), others might be supplies (Line 22) or office expenses (Line 18). The IRS wants to see both your total business income AND your total business expenses calculated separately. Don't stress too much about getting it perfect your first year - the key is being consistent and reasonable with your categorization. You've got this!

I've been dealing with this same issue for my online business! One thing that really helped me understand it was thinking about it from the IRS perspective - they want to see the full scope of your business activity, not just what ended up in your bank account. So for Schedule C Line 1, you report your total sales to customers (minus refunds), which shows how much business you actually did. Then in the expenses section, you list all the costs of doing that business - marketplace fees, shipping, supplies, etc. This gives them a complete picture: here's how much I sold, here's what it cost me to make those sales, and here's my net profit. The mistake a lot of new sellers make is only reporting the net amount that got deposited to their bank account as "gross receipts." But that's not what the IRS is looking for - they want to see both sides of the equation separately. Your marketplace fees aren't reducing your sales, they're a cost of doing business, so they belong in the expenses section where they can be properly categorized and deducted. Keep all your marketplace reports and statements - they'll have everything you need to fill out Schedule C correctly!