From renting spare rooms and vacation homes to car rides or using a bike…name a service and it is probably available through the sharing economy. Taxpayers who participate in the sharing economy can find helpful resources in the IRS Sharing Economy Tax Center on the IRS website at www.irs.gov. It helps taxpayers understand how this activity affects their taxes. It also helps these taxpayers meet their tax obligations.
Here are six things taxpayers should know about how the sharing economy might affect their taxes:
1. 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; and
- the taxpayer receives an information return – like a Form 1099 or Form W2.
2. Some expenses are deductible
Taxpayers who participate in the sharing economy may be able to deduct certain expenses. For example, taxpayers who use their cars for business may qualify to claim the standard mileage rate, which is 58¢ per mile for 2019.
3. Special rules for rentals
Taxpayers who rent out their homes or apartments, but also live in them 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.
4. 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, September 15, and January 15. Taxpayers use Form 1040-ES to figure these payments.
5. 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.
6. 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 withholding, the taxpayer will file Form W-4 with their employer to request the additional withholding.
For more information about this article, please contact our tax professionals at firstname.lastname@example.org or toll free at 844.4WINDES (844.494.6337).