sharing economy - six things you should know

The Sharing Economy – Six Things You Should Know

From renting spare rooms and vacation homes to car rides or using a bike…name a service and it’s probably available through the sharing economy. Taxpayers who participate in the sharing economy can find helpful resources in the IRS Sharing Economy Tax Center. It  helps taxpayers understand how this activity affects their taxes. It also gives these taxpayers information to help them meet their tax obligations.

Here are six things taxpayers should know about how the sharing economy might affect their taxes:

The Activity Is Taxable

Sharing economy activity is generally taxable. It is taxable even when:

  • The activity is only part time
  • The activity is something the taxpayer does on the side
  • Payments are in cash
  • The taxpayer receives an information return – like a Form 1099 or Form W2

Some Expenses Are Deductible

Taxpayers who participate in the sharing economy may be able to deduct certain expenses. For example, a taxpayer who uses their car for business may qualify to claim the standard mileage rate, which is 58 cents per mile for 2019.

There Are Special Rules For Rentals

If a taxpayer rents out their home or apartment, but also lives in it during the year, special rules generally apply to their taxes. Taxpayers can use the Interactive Tax Assistant tool, Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? to determine if their residential rental income is taxable.

Participants May Need To Make Estimated Tax Payments

The U.S. tax system is pay-as-you-go. This means that taxpayers involved in the sharing economy often need to make estimated tax payments during the year. These payments are due on April 15, June 15, Sept. 15 and Jan. 15. Taxpayers use Form 1040-ES to figure these payments.

There Are Different Ways To Pay

The fastest and easiest way to make estimated tax payments is through IRS Direct Pay. Alternatively, taxpayers can use the Electronic Federal Tax Payment System.

Taxpayers Should Check Their Withholding.

Taxpayers involved in the sharing economy who are employees at another job can often avoid making estimated tax payments by having more tax withheld from their paychecks. These taxpayers can use the Withholding Calculator on IRS.gov to determine how much tax their employer should withhold. After determining the amount of their withholding, the taxpayer will file Form W-4 with their employer to request the additional withholding.

Do You Participate In the Sharing Economy? Have Questions?

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Any tax advice herein is based on the facts provided to us and on our interpretation of tax legislation as it reads at the time the advice is provided. Tax law is subject to continual change, at times on a retroactive basis and may result in incremental taxes, interest or penalties. We are not responsible for updating our advice for changes in law or interpretation after the date the advice is provided. Every tax situation is different. We are not responsible for the tax implications to any individual or entity that may act on this advice.