Do You Earn Money from the Sharing Economy?
If you’re earning income from rides, renting spare rooms or vacation homes, or even delivering groceries, you’re participating in the sharing economy. This is a relatively new way to earn income, so taxpayers who engage in these activities should read the following tips.
Paying Taxes on this Income
Even if you only participate part-time in a sharing economy activity, you must report the income. For instance, if you drive for a ride-sharing company, like Uber or Lyft, it doesn’t matter if you only do it on the weekends – you still have to report the income. Even cash payments should be included on your tax return.
The key thing to know about your sharing economy income is that generally income taxes and self-employment taxes, if applicable, aren’t withheld when it comes to you. That means you might need to make estimated tax payments throughout the year. These payments are due once a quarter (the 15th of April, June, September and January). It’s a good idea to ask an accountant to help you with the calculation of how much you should pay.
If you don’t want the hassle of making a payment every quarter, there is another option for taxpayers who have regular employment in addition to their sharing economy income. You can increase your withholding from the wages at your other job. The IRS calculates taxes based on the total income you have. It doesn’t matter if the taxes are paid by income from another job, as long as you’re paying the correct tax amount for your total income.
Deductions & Special Rules
There are some unique deductions for taxpayers working in the sharing economy. Of course, it depends on which outlet you’re engaging in, so you should talk to your accountant about deductions available. Here are two examples:
- A driver who is using their car for ride-sharing may be able to claim the standard mileage rate while on the job. The rate is 58 cents per mile in 2019.
- Someone who rents their home or apartment will have many special rules. Typically, if you report rental income, you can deduct things like repairs and utilities associated with the rental period that otherwise would not be deductible.
It is important to remember you must report sharing economy income. Don’t think of it as a “side job” with tax-free earnings. If you receive a W-2 or 1099, the IRS also receives information saying you earned this money. You can be penalized both for not reporting the income and for underpayment of taxes through the year. Please contact your hb&k advisor if you have questions.