How people commute, travel and/or rent vacation accommodations these days often involves a new business sector — the sharing economy. Other ways of referring to it include the on-demand, gig or access economy, but no matter how you describe it, we’re talking about individuals and groups that use tech advancements to arrange transactions to generate revenue from assets they already own, such as cars and homes. The sharing economy can include household chores or even technology services. Services like Uber, Airbnb, and Lyft have grow tremendously over the past 5 years, and the IRS has taken notice. There are tax implications for the individuals and companies that share resources in exchange for payment.
In a nutshell this is how it works: You receive income from an activity, such as driving on Uber’s app using your own vehicle. The income you earn is taxable, and therefore all necessary and reasonable business expenses are deductible. You are essentially treated as an independent contractor, or business owner depending on what you are sharing. The bottom line is that you owe the government if you show a profit, even if you never receive a 1099. Even if this is your second job, or something you just do on the side for fun, your income is still taxable.
Retirees also need to consider whether any activities they perform are considered “work” and thus may affect their Social Security status.
Here are some things to consider for those participating in the sharing economy:
- Filing requirements.
- Employee or independent contractor status.
- Tax payments, including estimated tax payments.
- Self-employment taxes.
- Depreciation issues.
- Rules for home rentals.
- Business expenses.
These tax issues need to be front of mind throughout the year — filing requirements in regards to the income you receive and/or dole out. And this includes payment received even if it’s in the form of goods, property or services — not just money. These kinds of issues can crop up with Airbnb, for example. Sometimes, it’s wrongly assumed that various “unconventional” transactions are tax-free. Be sure you know the rules.
