With the advent of the Sharing Economy, many taxpayers have found a new stream of income with what is also known as the “on-demand,” “gig,” or “access economy.” Websites or online platforms such as Airbnb, Uber, and Lyft are just a few examples of this new income source.
Small business owners or self-employed individuals that offer goods and services through an online platform may be part of the sharing economy. Some participate part time while others operate full time. Activities such as ride sharing, freelancing, renting a spare bedroom, crowd funding, and almost everything in between are usually taxable. There are tax implications for the companies that provide the services and the individuals who perform the services.
Tax Tips for Individuals and Small Businesses Participating in the Sharing Economy
- Tax Reporting. Sharing economy activity is generally taxable. Payments received in the form of money, goods, property or services may require filing a tax return to report that income to the IRS. Additionally, tips received are treated as taxable income. As a small business owner or self-employed individual, you should report tips you receive as income on Schedule C or C-EZ. Not sure whether you can use any of the forms? Please call the office for help!
- Large Cash Amounts. If you are in a trade or business and receive more than $10,000 in cash in a single transaction or in related transactions, then you must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business within 15 days after receiving payment.
- Deductions. If you participate in the sharing economy, you can deduct expenses incurred while carrying on a trade or business. Examples of ordinary and necessary expenses include claiming the 54 cents per mile rate for 2017 when you use your vehicle for a ride-sharing business like driving for Uber and Lyft. Or deducting the commissions and other fees charged by a freelancer marketplace service.
- Estimated Tax Payments. Small businesses that participate in the sharing economy often need to make quarterly estimated tax payments to cover their tax obligation. Checkout Estimated Tax Payments for details on making estimated tax payments. Please call if you are not sure whether you need to make estimated tax payments or need help setting up EFTPS.
- Recordkeeping. As a participant in the sharing economy, it is important that you keep good records for many reasons including; assist in monitoring a business’s progress, tracking deductible expenses and substantiating items reported on tax returns. A good recordkeeping system includes a summary of all business transactions. Generally, it is best to record transactions on a daily basis.
Still have questions or concerns about the sharing economy, quarterly estimated tax payments, self-employment taxes, vacation home rentals, and filing accurate tax returns? Adachi Financial Services Tax Reps are available to direct your call.