Uber, Lyft, Airbnb, Etsy, Rover, TaskRabbit. If you’ve used some of these services–or provided services so they can others–you’re associated with the sharing economy.
In case you have only used these facilities (and not provided them), as there are you don’t need to worry about the tax implications however, if you’ve rented out an extra room in your own home via a company like Uber or Airbnb then you’re probably collecting a fee–a part of which goes towards the provider (on this example, Airbnb) plus a portion that you simply keep for providing the service. But whether it is your full-time gig or even a part-time job to create a little extra cash, you need to be aware of the tax consequences.
Millennials would be the primary users of the sharing economy but Gen X and Boomers use it too; and a recent PWC study discovered that 24 percent of boomers, age 55 and older, will also be providers. While many folks are seeking to earn some more income, some dive involved with it full-time hoping they could earn an income, but still, others simply enjoy meeting new people or providing a site that assists people. What most people don’t understand are these claims extra cash could impact their taxable income–especially should they have a full-time job within a company.
In other words, that extra money might turn into a tax liability once you determine your tax bill. In order to avoid surprises at tax time, it’s more valuable than ever being proactive to understand the tax implications of your new sharing economy gig and speak with a good tax professional.
Tip: If you have a job within a company be sure that your withholding reflects any extra income based on your side gig (e.g. boarding pets at your house through Rover or driving to get a ride-share company like Uber on weekends). Use Payroll tax compliance -4, Employee’s Withholding Allowance Certificate, to create any adjustments and submit it for your employer who’ll utilize it to find the amount of federal income tax to become withheld from pay.
New Business Owner
As you may not necessarily think about yourself like a newly self-employed business proprietor, the IRS does. So, even when you work through a business like Airbnb or Rover, you might be considered a business owner and therefore are responsible for your own taxes (including paying estimated taxes if you want to). The choice is yours to help keep a record of income and expenses–and of course, to help keep good records that substantiate your earnings and expenses (more on this below).
Note:In the event you receive income from a sharing economy activity, it’s generally taxable although you may don’t get 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 today, for the great news. Like a business proprietor, you might be entitled to certain deductions (subject to special rules and limits) that you cannot take as an employee. Deductions reduce the level of rental income that’s susceptible to tax. You could also be able to deduct expenses directly related to enhancements made just for your invited guests. For example, should you rent a space within your apartment through Airbnb, amounts spent on draperies, linens, or possibly a bed, could be deductible.
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