Uber, Lyft, Airbnb, Etsy, Rover, TaskRabbit. If you’ve used some of these services–or provided services for them to others–you’re part of the sharing economy.
If you’ve only used these services (and not provided them), as there are you don’t need to be worried about the tax implications but if you’ve rented out a spare room in your own home through a company like Uber or Airbnb then you’re probably collecting a fee–a percentage of which goes to the provider (on this example, Airbnb) and a portion that you simply keep for offering the service. But whether it is your full-time gig or perhaps a part-time job to make some extra cash, you should be aware of the tax consequences.
Millennials are the number one people that use the sharing economy but Gen X and Boomers put it to use too; and a recent PWC study found that 24 percent of boomers, age 55 and older, are also providers. While many people are trying to earn a bit of extra income, some dive involved with it full-time hoping they can make a living, yet still, others simply enjoy meeting new people or providing something that helps people. What many people don’t realize is that this supplemental income could impact their taxable income–especially if they have a full-time job with an employer.
In other words, that extra income might become a tax liability when you figure out your goverment tax bill. To avoid surprises at tax time, it’s more important than in the past to become proactive understand the tax implications of one’s new sharing economy gig and consult a reliable tax professional.
Tip: When you have employment within a company be sure that your withholding reflects any other income derived from 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 create any adjustments and submit it for your employer who’ll utilize it to figure the amount of federal income tax to become withheld from pay.
New Business Owner
As you may not necessarily think of yourself like a newly self-employed business owner, the internal revenue service does. So, while you work through a business like Airbnb or Rover, you are considered an entrepreneur and are responsible for your personal taxes (including paying estimated taxes if you wish to). It’s up to you to help keep a record of income and expenses–and needless to say, to keep good records that substantiate your income and expenses (more about this below).
Note:Should you receive income from your 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 Third Party Network Transactions, Form W-2, Wage and Tax Statement, or another income statement.
Now, for that very good news. As Streamline disclosure , you are entitled to certain deductions (susceptible to special rules and limits) that you can’t take as an employee. Deductions decrease the quantity of rental income that is susceptible to tax. You could also be able to deduct expenses directly related to enhancements made mainly for your invited guests. For example, should you rent out a room inside your apartment through Airbnb, amounts you may spend on window treatments, linens, or possibly a bed, might be deductible.
To learn more about Payroll tax compliance site: read here.