Meeting tax obligations as part of the ‘sharing’ economy
If you drive for a rideshare company, rent out an extra bedroom, or freelance for a newspaper, you might not consider yourself a small business owner. But the IRS does.
Those who offer goods and services through an online platform are part of the sharing economy. Some participate part time while others operate full time, but most activities are taxable. The IRS has a Sharing Economy Tax Center to help these taxpayers find the information and help they need to meet their tax obligations.
Payments received in the form of money, goods, property or services may require filing a tax return to report that income to the IRS.
People often conduct sharing-economy activities electronically but tips in cash are still a common occurrence. Tips are generally subject to withholding. Small businesses or self-employed persons should report tips they receive as income on Schedule C or C-EZ. See Publication 334, Tax Guide for Small Business, for more details.
Any person in a trade or business who receives more than $10,000 in cash in a single transaction or in related transactions must file Form 8300, Report of Cash Payments Over 10,000 Dollars Received in a Trade or Business, within 15 days after receiving payment.
The good news is that expenses related to a trade or business are usually deductible. Examples include claiming the 54 cents per mile rate for 2016 when using a car for a ride-sharing business. Or deducting the commission or fee charged by a freelancer marketplace service.
Small businesses in the sharing economy often need to make quarterly estimated tax payments to cover their tax obligation. Form 1040-ES, Estimated Tax for Individuals, will help to figure these payments. IRS Direct Pay is the fastest and easiest way to make these payments. The Treasury Department’s (EFTPS) system is also an option.
Good records assist in monitoring a business’s progress, tracking deductible expenses, and can substantiate items reported on tax returns. A good recordkeeping system includes a summary of all business transactions. Generally, it is best to record transactions on a daily basis.