How the sharing economy impacts your taxes
Posted on September 6, 2019
You’ve likely been hearing a lot about today’s sharing economy. More than a trendy phrase, this umbrella term affects things like renting spare rooms and vacation homes to providing car rides or even sharing a bike. Name a service and it’s probably available through the sharing economy.
Taxpayers who participate in the sharing economy should get in the game understanding how income made will affect them come tax season. The IRS has put together some helpful guidelines on IRS.gov called Sharing Economy Tax Center. It also gives taxpayers information to help them meet their tax obligations.
Here are five things taxpayers should know about how the sharing economy might affect their taxes:
- Sharing economy activities are generally taxable (even) when:
- The activity is only part time
- The activity is something the taxpayer does on the side
- Payments are in cash
- The taxpayer receives an information return – like a Form 1099 or Form W2.
- Some expenses may be deductible. For example, someone who uses their car for business may qualify to claim the standard mileage rate (58 cents per mile for 2019).
- Special rules for rentals. If one rents out his/her home or apartment, but also lives in it during the year, special rules will apply to their taxes. The Interactive Tax Assistant tool, Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? Is a good way to determine if and when residential rental income is taxable.
- Estimated tax payments are often the way to go. The U.S. tax system is pay-as-you-go, or penalties accrue. Estimated tax payments are due on April 15, June 15, Sept. 15 and Jan. 15. You can refer to IRS.gov Form 1040-ES to figure these payments.
- Check your withholding. Those involved in the sharing economy who are employees at another job can often avoid making estimated tax payments by having more tax withheld from your paychecks. Use the Withholding Calculator on IRS.gov to determine how much tax their employer should withhold.
Don’t wait to be surprised in April. Make sure you know where you stand with regard to your full or part time sharing economy work. You can always ask one of our CPAs to help you review your status and work out a plan before the end of the year.