Is Income from Airbnb, Uber and the Sharing Economy Taxable?
Whether you’re renting a spare room on Airbnb, sharing your car on Uber or offering freelance services on UpWork, the “sharing economy” has changed how people commute, travel, rent vacation accommodations and perform many other important activities.
Also referred to as the on-demand, gig or access economy, the sharing economy allows individuals and groups to utilize technology advancements to arrange transactions and 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 significant tax implications for the companies that offer the services and the individuals who deliver them.
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
The taxpayer doesn't receive 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, a taxpayer who uses their car for business may qualify to claim the standard mileage rate, which is 58 cents per mile for 2019.
3. There are special rules for rentals. If a taxpayer rents out their home or apartment, but also lives in it during the year, special rules generally apply to their taxes. Taxpayers can use the Interactive Tax Assistant tool on IRS.gov, 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, Sept. 15 and Jan. 15. Taxpayers use Form 1040-ES to figure these payments.
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 their withholding, the taxpayer will file Form W-4 with their employer to request the additional withholding.
Taxpayers who participate in the sharing economy can find helpful resources on the IRS Sharing Economy Tax Center on IRS.gov. It helps taxpayers understand how this activity affects their taxes and provides information to help understand their tax obligations.
If you have any questions about what taxes you may owe as a member of the “sharing economy” or would like help with tax planning, please CONTACT US right away. We’re here to help!