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5 Key Tax Issues in the Sharing Economy

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May 24th 2017
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The sharing economy is taking the country by storm. The activities range from ride sharing to renting a spare room to crowdfunding and almost everything in between. If you’re not a participant in one of these activities, it’s likely you know someone who is.

What are the tax consequences? Generally, income earned from the sharing economy is taxable to the recipient, but self-employed taxpayers may be entitled to offsetting deductions.

According to the IRS, there are five important tax issues for participants in this new wave of small business activity to consider.

1. Tax reporting. First and foremost, sharing economy activity is generally taxable. If you receive payments in the form of money, goods, property, or services, you must report the income on your personal return. In addition, separate cash tips also are treated as taxable income.

The IRS directs taxpayers to Publication 334, Tax Guide for Small Business, for more details.

2. Large cash amounts. If your business receives more than $10,000 in cash from one buyer as a result of a single transaction or two or more related transactions, you must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, within 15 days after receiving payment.

3. Deductions. Usually, you can deduct the “ordinary and necessary” expenses incurred as a participant in the sharing economy, including deductions for your vehicle if you’re an Uber or Lyft driver.

For 2017, you can use a flat rate of 53.5 cents per business mile (plus related tolls and parking fees) in lieu of your actual expenses. Similarly, a taxpayer may write off commissions or other fees charged in a freelancer marketplace service.

4. Estimated tax payments. A small business in the sharing economy often needs to make quarterly estimated tax payments to cover its tax obligation. Use Form 1040-ES, Estimated Tax for Individuals, to help figure out these payments.

The IRS is also encouraging taxpayers to rely on its Direct Pay system for speed and simplicity.

5. Recordkeeping. Good recordkeeping is critical for tracking deductible expenses and substantiating items reported on tax returns. The system should include a summary of all business transactions. Generally, it is best to record transactions on a daily basis.

For more information about the tax implications of the sharing economy, the IRS points small business owners to its Sharing Economy Resource Center, as well as this YouTube video.

Related articles:

IRS Launches Tax Hub for the Sharing Economy
Employee or Contractor? An In-Depth Look at Uber and Lyft
IRS Standard Mileage Rates Go Down for 2017

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