If you use one of the many online platforms available to rent a spare bedroom, provide car rides, or to connect and provide a number of other goods or services, you’re involved in what is sometimes called the sharing economy.
An emerging area of activity in the past few years, the sharing economy has changed how people commute, travel, rent vacation places and perform many other activities. Also referred to as the on-demand, “gig” or freelance economy, sharing economies allow individuals and groups to utilize technology advancements to arrange transactions to generate revenue from assets they possess – (such as cars and homes) – or services they provide – (such as household chores or technology services). Although this is a developing area of the economy, there are tax implications for the companies that provide the services and the individuals who perform the services.
This means if you receive income from a sharing economy activity, it’s generally taxable even if you don’t receive a Form 1099-MISC, Form 1099-K, Form W-2, or some other income statement. This is true even if you do it as a side job or just as a part time business and even if you are paid in cash. On the other hand, depending upon the circumstances, some or all of your business expenses may be deductible, subject to the normal tax limitations and rules.
“There’s a real danger here that people engaged in the “gig economy” won’t understand that all income has to be reported on their tax returns, even if they are paid in cash or the activity is only part-time or occasional,” said Kerry Freeman, an enrolled agent in the Phoenix area. “Estimated quarterly payments may be necessary, and when you’re selling cufflinks on Etsy, for instance, the fact that you could be setting yourself up for a letter from IRS is probably the last thing on your mind.”
According to Freeman, taxpayers may also be missing out on business deductions they are qualified to claim, such as mileage on leased cars. The rules on rental income can be particularly tricky, from record-keeping requirements to the tax form necessary for reporting the income, to the taxes states and localities require.
As you can see, there’s a lot taxpayers need to know before taking part in the sharing economy. To help answer your questions, this week the IRS launched a new Sharing Economy Resource Center on IRS.gov. The webpage provides additional information to assist taxpayers in meeting their tax compliance obligations, filing requirements, estimated tax payments, self-employment taxes and other issues related to this emerging area.
To ensure that you’re on top of all the tax aspects of the sharing economy and to avoid any potential missteps, we encourage you to contact us at 984-0646 to schedule an appointment.