From Airbnb, to Snapgoods, to bike rentals, in a modern, digitized world, the sharing economy is taking over the marketplace and giving us multiple choices for services.
Nowadays, anything and everything you can think of is available through some online, community-based service, and while the sharing economy is a great way to both make money and help the broader economy in general, due to it’s unique function, it does come with some quirks in taxation.
Here are five tax tips and considerations when dealing in the sharing economy.
1) It’s Almost Always Taxable
While it may not always fit neatly into a W2, money-making activity within the sharing economy is pretty much always taxable, even when:
- It’s a part-time job or side gig;
- You’re paid in cash; or
- You receive a W2, Form 1099, or equivalent information return.
2) Some Deductibles Apply
If you pay for anything within the sharing economy, some deductibles can apply to lessen the tax load of the expenses. For instance, if renting a car that is used solely for business purposes, you might be able to claim the standard mileage rate of $0.58/per mile, as of 2019.
3) Renters Have Special Requirements
If you’re a home owner who lives in your house for part of the year, and then rents it out for the remaining months, then some special requirements may apply regarding your taxes. To help you discover what and how you should pay, use the IRS’s interactive tool here.
4) Pay in Estimated Taxes
For some sharing economists, you may have to pay your taxes in estimated payments, which are due on April 15th, June 15th, September 15th, and January 15th respectively. All estimated taxes must be filed through a Form 1040-ES, and can be paid either via mail, IRS Direct Pay, or the Electronic Federal Tax Payment System.
5) Adjust Your Withholding
For those who have a full-time job outside of the sharing economy, sometimes making estimated tax payments can be avoided by simply asking your employer to withhold your estimated tax dues along with your usual paycheck withholding, satisfying both taxes by taking out extra from your income.
To do this, simply visit the IRS’s Withholding Calculator to determine how much your employer should withhold, then have both of you submit a W4 to ask for the additional withholding.
Want more information? For the full scoop on all things tax related within the sharing economy, visit the Sharing Economy Tax Center on IRS.gov or consult with a tax professional.