How the Sharing
Affects Your Taxes
If you've ever used--or provided
services for-- Uber, Lyft, Airbnb, Etsy, Rover, or TaskRabbit.
then you're a member of the sharing economy and it could
affect your taxes.
The good news is that if you've
only used these services (and not provided them), then there's
no need to worry about the tax implications.
However, if you've rented out a spare room in your house
through a company like Airbnb then you need to be aware of the
tax consequences. You may not realize that the extra income
you're making could impact your taxable income--especially if
you have a full-time job with an employer. That extra income
is taxable even when the activity is cash only or is a
part-time "side gig" and it could turn into a tax liability if
you're not careful.
To avoid surprises at tax time, it's more important
than ever to be proactive in understanding the tax
implications of your new sharing economy gig and seek the
advice of a competent tax professional.
TIP: If you have a job
with an employer make sure your withholding reflects any
extra income derived from your side gig (e.g. boarding
pets at your home through Rover or driving for a
ride-share company like Uber on weekends). Use Form W-4,
Employee's Withholding Allowance Certificate, to make
any adjustments and submit it to your employer who will
use it to figure the amount of federal income tax to be
withheld from pay.
While you may not necessarily think of yourself as a newly
self-employed business owner, the IRS does. So, even though
you work through a company like Airbnb or Rover, you are
considered a business owner and are responsible for your own
taxes (including paying estimated taxes if you need to). It's
up to you to keep track of income and expenses--and of course,
to keep good records that substantiate your income and
expenses (more on this below).
NOTE: If you receive
income from a sharing economy activity, it's generally
taxable even if you don't receive a Form 1099-MISC,
Miscellaneous Income, Form 1099-K, Payment Card and
Third Party Network Transactions, Form W-2, Wage and Tax
Statement, or some other income statement.
And now, for the good news. As a
business owner, you are entitled to certain deductions
(subject to special rules and limits) that you cannot take as
an employee. Deductions reduce the amount of rental income
that is subject to tax. You might also be able to deduct
expenses directly related to enhancements made exclusively for
the comfort of your guests. For instance, if you rent out a
room in your apartment through Airbnb, amounts you spend on
window treatments, linens, or even a bed, could be deductible.
If you drive for Uber and use your personal vehicle you may be
able to take the standard business mileage rate, which in
2019, is 58 cents per mile.
more complicated than it seems
first glance renting out a spare room through Airbnb or pet
sitting through Rover seems like an easy thing to do, but as
with most things, it's more complicated than it seems and
you'll need to keep an eye out for the following pitfalls:
- Insurance requirements
- Business license registration (state or municipal)
- Room and lodging, or tourist taxes
Many municipalities charge room, occupancy, or tourist taxes
on the amount of rental paid for short term stays (less than
30 days). Noncompliance may result in penalties, fees, and
payment of back taxes owed.
Estimated Tax Payments
Failure to set aside money for taxes and/or estimated tax
payments is common, especially under tax reform. The U.S. tax
system is pay as you go, which means taxes must be paid as
income is earned during the year, referred to as estimated tax
payments. Estimated tax payments apply toward both income tax
and self-employment tax (Social Security and Medicare).
If you don't pay enough tax, through either withholding or
estimated tax (or a combination of both) you may have to pay a
penalty. Estimated tax payments are due quarterly. The payment
of estimated tax for the income for the first quarter of the
calendar year (that is, January through March) is due on April
15. Payments for subsequent quarters are generally due on June
15, September 15 and January 15. Please visit the Tax Due
Dates for applicable dates this year. If you don't pay enough
by these dates you may be charged a penalty even if you're due
a refund when you file your tax return.
If you also work as an employee, you can often avoid needing
to make estimated tax payments by having more tax withheld
from your paycheck.
Taxpayers involved in the sharing economy who are employees at
another job can often avoid making estimated tax payments by
having more tax withheld from their paychecks. Don't hesitate
to call the office if you need assistance figuring out your
withholding and filing a new W-4 with your employer to request
the additional withholding.
1099-MISC or 1099-K
As a sole proprietor, you may receive a Form 1099-MISC
(employees receive a Form W-2) or a 1099-K. Form 1099-K,
Payment Card and Third Party Network Transactions, is an
information return that reports the gross amount of reportable
payment card and third party network transactions for the
calendar year to you and the IRS. If you receive a Form
1099-K, you should retain it and use the information reported
on the Form 1099-K in conjunction with your other tax records
to determine your correct tax. Even if you didn't receive one
from the company you provide services for (Lyft, Uber, Airbnb,
etc.), the IRS might have, so make sure you report that income
on your return.
Tax Rules for Renting out your Home
If you rent your home out for 15 days or more during a
calendar year and you receive rental income for the use of a
house or an apartment, including a vacation home, that rental
income must be reported on your return in most cases. You may
deduct certain expenses such as mortgage interest, real estate
taxes, maintenance, utilities, and insurance and depreciation,
which reduce the amount of rental income that is subject to
If you use the dwelling unit for both rental and personal
purposes, you generally must divide your total expenses
between the rental use and the personal use based on the
number of days used for each purpose. You won't be able to
deduct your rental expense in excess of the gross rental
TIP: Generally, if you
rent out your home for less than 15 days, then you do
not need to report any of the rental income and you
don't deduct any expenses as rental expenses.
It's important to keep good records and to choose a
recordkeeping system suited to your business that clearly
shows your income and expenses. The type of records you need
to keep for federal tax purposes depends on what kind of
business you operate; however, at a minimum, your
recordkeeping system should include a summary of your business
transactions (i.e. income and expenses) using a cash basis of
accounting. Your records must also show your gross income, as
well as your deductions and credits.
are Complicated: Don't get Caught Short
If you have any questions or would like more information about
the sharing economy and your taxes, please contact the office for assistance at
SMEED CPA Financial
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