Uber, Lyft, Airbnb, Etsy, Rover, TaskRabbit. If you have used any of these services–or provided services for them to others–you’re part of the sharing economy.
In case you have only used these types of services (rather than provided them), as there are you don’t need to concern yourself with the tax implications however, if you’ve rented out an extra room in your own home by way of a company like Uber or Airbnb then you’re probably collecting a fee–a percentage of which matches towards the provider (on this example, Airbnb) along with a portion which you keep for providing the service. But be it your full-time gig or even a part-time job to make some extra cash, you should be aware of the tax consequences.
Millennials are the number one users of the sharing economy but Gen X and Boomers use it too; along with a recent PWC study discovered that 24 percent of boomers, age 55 and older, are also providers. While many folks are trying to earn some extra income, some dive into it full-time hoping they could earn a living, and still, others simply enjoy meeting new people or providing something that assists people. What many people don’t realize is that this extra money could impact their taxable income–especially when they have a full-time job with an employer.
Quite simply, that extra income might become a tax liability as soon as you figure out your tax bill. In order to avoid surprises at tax time, it’s more essential than ever being proactive in understanding the tax implications of the new sharing economy gig and speak with a reliable tax professional.
Tip: For those who have work within a company be sure that your withholding reflects any other income based on your side gig (e.g. boarding pets at your home through Rover or driving for any ride-share company like Uber on weekends). Use Form W-4, Employee’s Withholding Allowance Certificate, to make any adjustments and send it in in your employer that will use it to figure the quantity of federal tax to become withheld from pay.
New Business Owner
When you might not necessarily think about yourself being a newly self-employed business owner, the internal revenue service does. So, even when you sort out a company like Airbnb or Rover, you’re considered an entrepreneur and so are in charge of your personal taxes (including paying estimated taxes if you need to). The choice is yours to maintain track of income and expenses–and needless to say, 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 though you don’t be given a Form 1099-MISC, Miscellaneous Income, Form 1099-K, Payment Card and 3rd party Network Transactions, Form W-2, Wage and Tax Statement, as well as other income statement.
And now, for the great news. Like a business owner, you’re eligible to certain deductions (susceptible to special rules and limits) that you can’t take as an employee. Deductions lessen the level of rental income which is subject to tax. Business owner insurance can also be able to deduct expenses directly related to enhancements made exclusively for the comfort of your invited guests. For example, in the event you rent out a room in your apartment through Airbnb, amounts spent on drapes and window treatments, linens, or even a bed, could possibly be deductible.
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