Uber, Lyft, Airbnb, Etsy, Rover, TaskRabbit. If you have used any of these services–or provided services so they can others–you’re part of the sharing economy.
In case you have only used these facilities (and not provided them), then there’s no need to concern yourself with the tax implications but when you’ve rented out an extra room within your house via a company like Uber or Airbnb then you’re probably collecting a fee–a percentage of which works to the provider (in this example, Airbnb) and a portion that you simply keep for providing the service. But whether it’s your full-time gig or even a part-time job to produce a little extra cash, you have to be mindful of the tax consequences.
Millennials would be the number 1 people that use 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, may also be providers. While many folks are looking to earn a bit of extra money, some dive involved with it full-time hoping they can earn an income, but still, others simply enjoy meeting new people or providing something that assists people. What many people don’t understand are these claims extra money could impact their taxable income–especially should they have a full-time job with an employer.
Quite simply, that extra money might become a tax liability once you figure out your tax bill. To prevent surprises at tax season, it’s more important than ever before to become proactive to understand the tax implications of your new sharing economy gig and consult a good tax professional.
Tip: If you have a job within a company be sure that your withholding reflects any extra income derived from 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 Form W-4, Employee’s Withholding Allowance Certificate, to produce any adjustments and submit it for your employer who will utilize it to figure the amount of federal taxes to be withheld from pay.
New company Owner
While you may not necessarily think of yourself being a newly self-employed business proprietor, the government does. So, while you work through an organization like Airbnb or Rover, you’re considered a business person and are responsible for your own personal taxes (including paying estimated taxes if you need to). The choice is yours to maintain track of income and expenses–and of course, to keep good records that substantiate your income and expenses (read more about this below).
Note:In the event you receive income from the 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 Alternative party Network Transactions, Form W-2, Wage and Tax Statement, as well as other income statement.
Now, for that great news. As Sales tax audit , you might be eligible for certain deductions (susceptible to special rules and limits) that you cannot take as a possible employee. Deductions reduce the level of rental income which is susceptible to tax. You could also be able to deduct expenses proportional to enhancements made mainly for your friends and relatives. For example, if you book a room within your apartment through Airbnb, amounts you may spend on window treatments, linens, or perhaps a bed, might be deductible.
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