No doubt about it, the sharing economy is big business. Thousands of Americans participate, from offering homes to travelers to running errands for subscribers or giving rides around town. But taking part in the sharing economy—also called the “gig” economy—can also affect a person’s tax picture.
The Internal Revenue Service reminds that there are six areas taxpayers should keep in mind if they get income from an app in the sharing economy:
Remember that sharing economy activity is generally taxable. This can include:
- Part-time work
- A side business
- Cash payments received
- Income stated on a Form 1099 or Form W-2
Depending on the situation, some sharing-economy participants can deduct their business expenses. Driving for Lyft or Uber, for example? You may qualify to claim the standard mileage rate.
Taxpayers who rent out a home or apartment but also live in the property during the year may be covered by special tax rules. Check out IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes). The IRS also has an online interactive tool that walks users through a series of questions to determine if their rental income is taxable.
The smart money for a taxpayer is to “pay as you go,” so they don’t owe taxes due later. One way to cover tax due up front is to make estimated tax payments during the year. Use Form 1040-ES to figure estimated tax payments.
Those engaged in the sharing economy depend on their computers and phones for their business. So it makes sense to pay estimated taxes electronically. Drake’s own 1040PayTax.com makes it easy. It’s fast and secure, with no fuss.
Taxpayers in the sharing economy might want to review their withholding amounts – especially if they have a full-time or “main” job and work at a sharing economy job on the side. By having more tax withheld from their regular paychecks, they may avoid paying estimated taxes every quarter. Not sure just what the right withholding amount should be? Use the Withholding Calculator on the IRS website.
The IRS has more resources available for taxpayers engaged in sharing economy commerce. Access them online through the IRS Sharing Economy Tax Center.