2017 Share Economy Tax Information

Are you part of the Share Economy? Airbnb, Uber, Lyft, HomeAway, Booking.com, VRBO to name a few. Be prepared for this tax season and planning your accounting for next year. See below IRS recent publication (shared by Airbookkeeper.org). If you need our help setting up systems, Contact Us.

This information is directly from the IRS and shared by airbookkeeper.org.  If you have questions, we are here to help. The “Share Economy” raises a number of questions. Click on the link below to access the article with active links.

Source: Sharing Economy Tax Center https://www.irs.gov/businesses/small-businesses-self-employed/sharing-economy-tax-center

Sharing Economy Tax Center

If you use one of the many online platforms available to rent a spare bedroom, provide car rides, or to connect and provide a number of other goods or services, you’re involved in what is sometimes called the sharing economy.

An emerging area of activity in the past few years, the sharing economy has changed how people commute, travel, rent vacation places and perform many other activities. Also referred to as the on-demand, gig or access economy, sharing economies allow individuals and groups to utilize technology advancements to arrange transactions to generate revenue from assets they possess – (such as cars and homes) – or services they provide – (such as household chores or technology services). Although this is a developing area of the economy, there are tax implications for the companies that provide the services and the individuals who perform the services.

This means if you receive income from a sharing economy activity, it’s generally taxable even if you don’t receive a Form 1099-MISC, Miscellaneous Income, Form 1099-K, Payment Card and Third Party Network Transactions, Form W-2, Wage and Tax Statement, or some other income statement. This is true even if you do it as a side job or just as a part time business and even if you are paid in cash. On the other hand, depending upon the circumstances, some or all of your business expenses may be deductible, subject to the normal tax limitations and rules.

The IRS encourages taxpayers working in these areas to understand the potential tax issues affecting them. The IRS is providing additional information to help people, and many tax professionals with tax issues and questions related to this emerging area. The tax software industry is also looking at this area, and many software programs can assist when you do your taxes in 2017.

Among the following tax issues that may apply to those participating in the sharing economy:

Issues for Individuals Performing Services

Filing Requirements
Employee or Independent Contractor
Tax Payments, Including Estimated Tax Payments Self-Employment Taxes
Depreciation
Rules for Home Rentals
Business Expenses

Employment Tax Issues for the Companies Providing Services

Determining Whether the Individuals Providing Services are Employees or Independent Contractors
Employer/Payer Employment Tax Obligations

Issues for Individuals Performing Services

Filing Requirements

Whether or not you participate in the sharing economy, if you received a payment during the calendar year as a self-employed individual, an employee or a small business, you may be required to file a tax return to report that income to the IRS. This includes payment received in the form of money, goods, property, and services.

Helpful Links:

Publication 17, Your Federal Income Tax Publication 525, Taxable and Nontaxable Income

Related Forms:

Form 1040, U.S. Individual Income Tax Return
Schedule C (Form 1040), Profit or Loss From Business Schedule E (Form 1040), Supplemental Income and Loss Form 1065, U.S. Return of Partnership Income
Form 1120, U.S. Corporation Income Tax Return
Form 1120S, U.S. Income Tax Return for an S Corporation

Employee or Independent Contractor

If you are providing services and are not certain whether you are an employee or independent contractor, you may wish to review to Publication 1779 – Independent Contractor or Employee?.

Helpful Links:

Tax Topic 762 Independent Contractor vs. Employee Independent Contractor (Self-Employed) or Employee?

Related Forms:

Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
Form 8919, Uncollected Social Security and Medicare Tax on Wages

Tax Payments, Including Estimated Tax Payments

You may make estimated tax payments to pay tax on income that isn’t subject to withholding (such as income from self-employment and rental activities). You may also make estimated tax payments to avoid penalties if the amount of income tax withholding from your salary, pension or other income is not enough to cover your tax for the year.

Taxes are pay-as-you-go, and making estimated tax payments is HOW you pay-as-you-go. Taxpayers use estimated tax payments to pay both income tax and self-employment tax (Social Security and Medicare). If you don’t pay enough tax, through either withholding or estimated tax, or a combination of both, you may have to pay a penalty. The payment of estimated tax for the income for the first quarter of the calendar year (that is, January through March) is due on April 15. Payments for subsequent quarters are due on June 15, September 15 and January 15. If you don’t pay enough by these dates you may be charged a penalty even if you’re due a refund when you file your tax

return.

If you also work as an employee, you can often avoid needing to make estimated tax payments by having more tax withheld from your paycheck. This may be a particularly attractive option if, for example, your sharing economy activity is merely a side job or part-time business. To do this, fill out a new Form W-4 and give it to your employer. The Withholding Calculator is a helpful resource.

Helpful links:

Use IRS Direct Pay to pay your quarterly estimated tax Estimated Taxes and Due Dates
Electronic Federal Tax Payment System Self-Employed Individuals Tax Center

Publication 505 – Tax Withholding and Estimated Tax Publications and Forms for the Self-Employed

Related forms:

Form 2210 – Underpayment of Estimated Tax by Individuals, Estates, and Trusts Form 1040-ES – Form and instructions
Small Business Forms and Publications

Self-Employment Taxes

Self-employed workers are taxed differently from employees. Self-employed individuals (e.g., independent contractors) must pay self-employment tax. Self-employment tax consists of Social Security and Medicare taxes, and with no employer-matching of these taxes, self-employed individuals pay the full amount of Social Security and Medicare taxes themselves. However, don’t confuse it with income tax or estimated taxes.

Helpful links:

Self-Employed Individuals Tax Center
Publications and Forms for the Self-Employed
Small Business Forms and Publications
Business Taxes for the Self-Employed: The Basics Schedule C: Who needs to file and how to do it Video Businesses with Employees
Small Business and Self-Employed Tax Center
IRS Direct Pay
EFTPS: The Electronic Federal Tax Payment System Recordkeeping

Related forms:

Forms and Instructions – Filing and Paying Business Taxes

Depreciation

Depreciation is an income tax deduction for wear and tear and deterioration of property with a life longer than a year. It’s an annual allowance that lets you recover, over time, the cost or other basis of certain property you own. The kinds of property you can depreciate include machinery, equipment,

buildings, vehicles and furniture. You can’t claim depreciation on property held for personal purposes.

If you use property, such as a car, for both business or investment and personal purposes, you can depreciate only the business or investment use of that portion. Other special rules and limits often apply, especially if you are an employee rather than an independent contractor. In some instances, you may qualify for one of the simplified options, such as the standard mileage rate for business use of a car or the simplified method for claiming the home office deduction.

Helpful links:

A Brief Overview of Depreciation
Publication 946 – How To Depreciate Property
Publication 527 – Residential Rental Property (Including Rental of Vacation Homes) Publication 463-Travel, Entertainment, Gift, and Car Expenses
Publication 551, Basis of Assets

Forms Related to Publication 551
Publication 925 – Passive Activity and At-Risk Rules

Related forms:

Form 2106, Employee Business Expenses
Form 2106-EZ, Unreimbursed Employee Business Expenses Form 4562, Depreciation and Amortization
Form 4684, Casualties and Thefts
Form 4797, Sales of Business Property
Form 8829, Expenses for Business Use of Your Home Schedule C (Form 1040), Profit or Loss From Business

Rules for Home Rentals

If you receive rental income for the use of a house or an apartment, including a vacation home, it must be reported on your return in most cases. You may deduct certain expenses, but special rules and limits often apply. These deductible expenses, which may include mortgage interest, real estate taxes, casualty losses, maintenance, utilities, insurance and depreciation, reduce the amount of rental income that is subject to tax.

If you use the dwelling unit for both rental and personal purposes, you generally must divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. You won’t be able to deduct your rental expense in excess of the gross rental income limitation.

There’s a special rule if you use a dwelling unit as a personal residence and rent it for fewer than 15 days. In this case, don’t report any of the rental income and don’t deduct any expenses as rental expenses. If you provide substantial services that are primarily for your tenant’s convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Use Form 1065, U.S. Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Substantial services don’t include such things as heat and light, cleaning of public areas, or trash collection.

Helpful links:

Rental Income and Expenses – Real Estate Tax Tips
Personal Use of Business Property (Condo, Timeshare, etc.)
Publication 334, Tax Guide for Small Business
Topic 414 – Rental Income and Expenses
Topic 415 – Renting Residential and Vacation Property
Publication 527 – Residential Rental Property (Including Rental of Vacation Homes) Publication 547 – Casualties, Disasters, and Thefts

Business Expenses

The tax code allows you to deduct certain costs of doing business from gross income. Generally, you can’t deduct personal, living or family expenses. You can deduct the business part only, such as supplies, cell phones, auto expenses, food and drinks for passengers, car washes, parking fees, tolls, roadside assistance plans, taxes, and incentives associated with certain electric and hybrid vehicles.

It’s important to keep good records. Choose a recordkeeping system suited to your business that clearly shows your income and expenses. The business you’re in affects the type of records you need to keep for federal tax purposes. Your recordkeeping system should include a summary of your business transactions. Your records must also show your gross income, as well as your deductions and credits. Federal law sets statutes of limitations that can affect how long you need to keep tax records.

Helpful links:

Recordkeeping
How long should I keep records?
Publication 334, Tax Guide for Small Business
Publication 463 – Travel, Entertainment, Gift, and Car Expenses Publication 535 –Business Expenses
Publication 583, Starting a Business and Keeping Records Publication 587, Business Use of Your Home

Employment Tax Issues for the Companies Providing Services

Companies providing services in the sharing economy should consider several employment tax issues:

Determining Whether the Individuals Providing Services are Employees or Independent Contractors
This is an important question for taxpayers who are paying others for providing their services in the sharing economy. Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services.

Helpful links:

Independent Contractor (Self-Employed) or Employee? Self-Employed Individuals Tax Center
General Employment Tax Issues

Employer/Payer Employment Tax Obligations

Once a determination is made (whether by the business or by the IRS), the next step is filing the appropriate forms and paying the associated taxes.

Helpful links(access on IRS site link above):

Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
Understanding Employment Taxes
Filing and Paying Your Business Taxes

Related forms:

Forms and associated taxes for independent contractors Forms and associated taxes for employers

Advertisements

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s