The Internal Revenue Service unveiled a new web page on IRS.gov to help taxpayers engaged in the sharing economy locate resources that will help them meet their tax obligations.
The sharing economy (also called the “on-demand economy,” the “gig economy,” or the “access economy”) has expanded choices for how people commute, travel, rent vacation lodging, and even getting household tasks get done. The concept uses technology – such as cell phone apps – to link the individual service provider with potential customers and provides the vehicle for payment for that service.
Unfortunately, at least one recent study found that many taxpayers with sharing economy income just weren’t aware what tax benefits or responsibilities came with that type of income. So the IRS decided to create a new Sharing Economy Resource Center on IRS.gov, working in conjunction with the National Taxpayer Advocate.
The new Resource Center 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.
The IRS stresses that the expertise of a trusted tax professional could be very helpful when dealing with many sharing economy issues.
Points to Ponder
The IRS says there is a short list of topics that sharing economy taxpayers should keep in mind:
- Taxes. Income received is generally taxable, even if the taxpayer does not receive a Form 1099, W-2, or some other income statement. This is true if the sharing economy activity is only part-time or a sideline business and even if the taxpayer is paid in cash. On the other hand, depending upon the circumstances, some or all business expenses may be deductible.
- Deductions. There are some simplified options available for deducting many business expenses for those who qualify. For example, a person who uses his or her car for business often qualifies to claim the standard mileage rate, currently 54 cents per 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 taxable 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. The U.S. tax system is pay as you go. This means that people 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, Sept. 15, and Jan. 15. Use Form 1040-ES 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, people 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. File Form W-4 with the employer to request additional withholding. The Withholding Calculator on IRS.gov can also be a helpful resource.