Uber. Lyft. Airbnb. Our world is being changed and shaped by companies like these who are a part of a sharing economy - a way for a person to rent out their services to others, and in turn you can find what you need from other users. A ride to the airport, a graphic designer, a dog-sitter or an apartment for a weekend trip is just a few taps or clicks away.
But what happens when all of this convenience leads to tax issues? This article lays out some general information about taxes and the sharing economy, and then provides advice for those facing tax audits related to their sharing economy work.
Facing an audit and too busy to read the whole article? Jump ahead to the "What to do if I get audited?" section.
What Do I Need To Know About Taxes And The Sharing Economy?
Because the gig economy is so new, with it come issues that economists have never had to deal with before. One of the bigger issues: taxes. The companies that offer these services and the customers who provide and consume the product both need to pay taxes - the IRS recently set up a site to help both sides with resources and guidance.
The key to understanding taxes as a part of the sharing economy is that you're a sole proprietor, or someone who works and earns independently. So instead of filling out a W-2 like a regular employee, you'll need a 1099-MISC form to report earnings -taxes won't be withheld throughout the year, so you'll need to keep track of your earnings to properly report them to be taxed.
However, as a sole proprietor, you can also deduct business expenses from your income and pay the difference. For instance, as a Lyft driver, you can deduct car expenses like the standard mileage rate or actual costs to you like gas, lease payments, car depreciation and tire changes.
What Resources Are Available?
All of these calculations, tracking, and deductions can get overwhelming, especially for a new Uber driver or HomeAway host. What can you do to stay on top of your taxes and not run into financial or legal issues?
The IRS page mentioned above is a great resource to start with - it's full of a wealth of tips, forms and guidance to report, file, and pay your taxes. Some of the page's best advice:
- Even if you haven't filled a 1099 or W-2, any income you receive will most likely be taxable, even if it's just freelance, part-time, etc.
- Your estimates of your earnings are due to be paid by the 15th of April, June, September, and January. If you do not pay on time, you can run into penalties.
- Many business expenses are deductible, so it's very important to know what is and isn't to save you on taxes.
- People who rent out their apartments or homes on AirBnB, HomeAway, etc. for 15 days or more have special regulations to keep in mind: you must fully report income from your rentals, business vs. personal expenses around your property should be separate. If you rent out your home less than 15 days a month, you aren't required to report earnings, nor are the expenses you incur deductible.
If you're still stumped or overwhelmed, it's best to find a tax professional who can help guide you through the process to help you avoid penalties.
If all of your tax preparation work isn't enough and you still get audited, you need help ASAP. Tax audits should not be taken lightly, as they can impact your finances in both the short and long term. Putting your case in the hands of trusted tax attorneys does three things:
- It ensures that you don't miss any procedural steps and mdon't make any common mistakes that often arise when people try to handle audits on their own.
- It allows you to focus on running your business and keeping your career moving forward. You attorney will handle the bulk of correspondence with the IRS and will make the overall process move much more efficiently for you.
- You gain peace of mind. Rather than having to stress out over the audit all day while you're working, you know that you've done all you can and your case is in good hands.