In a newly launched web page, the “Sharing Economy Resource Center”, the IRS has provided guidance to taxpayers involved in the sharing economy (also called the on-demand, gig, or access economy) to help them quickly locate the resources they need to satisfy their tax obligations.
Background. IRS notes that an emerging area of activity in the past few years has changed how people commute, travel, rent vacation places and perform many other activities. The sharing economy allows individuals and groups to utilize technology advancements to arrange transactions to generate revenue from assets they possess. Typically, the Internet is used to connect suppliers willing to provide services or the use of assets—apartments for rent, cars for transportation services, etc.—to consumers. These platforms are also used to connect workers and businesses for short-term work, such as household chores or technology services. Although this is a developing area of the economy, there are tax implications for the companies that provide the services and the individuals who perform the services.
New guidance. IRS notes that if a taxpayer receive income from a sharing economy activity, it’s generally taxable. This is true even if the taxpayer even didn’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 some other income statement. There is likely a tax obligation even if the taxpayer pursued this activity as a side job or as a part time business and even if the taxpayer was paid in cash. On the brighter side, depending upon the circumstances, some or all of the taxpayer’s business expenses may be deductible, subject to the normal tax limitations and rules.
IRS has provided guidance to taxpayers with the release of its new “Sharing Economy Resource Center” webpage (at irs.gov/businesses/small-businesses-self-employed/sharing-economy-tax-center). IRS offers tips and resources on a variety of topics ranging from filing requirements and making quarterly estimated tax payments to self-employment taxes and special rules for reporting vacation home rentals. Some topics include:
- Taxes. Income received is generally taxable, even if the recipient doesn’t receive a Form 1099, W-2 or some other income statement and even if the activity is only part-time or a sideline business.
- Deductions. There are some simplified options available for deducting many business expenses for those who qualify. For example, a person who uses his car for business often qualifies to claim the standard mileage rate, currently 54¢ a mile for 2016.
- Rentals. Special rules generally apply to the rental of a home, apartment or other dwelling unit that is used by the taxpayer as a residence during the tax year. Usually, rental income must be reported in full, any expenses need to be divided between personal and business purposes and special deduction limits apply. But if the dwelling unit is rented out fewer than 15 days during the year, none of the rental income is reportable and none of the rental expenses are deductible.
- Estimated payments. Those involved in the sharing economy often need to make estimated tax payments during the year to cover their tax obligation. These payments are due on April 15, June 15, September 15, and January 15. Form 1040-ES is used to figure these payments.
- Payment options. The fastest and easiest way to make estimated tax payments is to do so electronically using IRS Direct Pay or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS).
- Withholding. Alternatively, those involved in the sharing economy who are employees at another job can often avoid needing to make estimated tax payments by having more tax withheld from their paychecks. Form W-4 can be filed with an employer to request additional withholding.
For more information on tax issues for the sharing economy, contact Larson & Company today.