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Whether you are familiar with the “Sharing Economy” or not, rest assured, the taxman is!
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Also known as shareconomy, collaborative consumption, collaborative economy, or peer economy, a common academic definition describes sharing economy as a hybrid market model of peer-to-peer exchange. The Oxford dictionary defines sharing economy as “An economic system in which assets or services are shared between private individuals, either free or for a fee, typically by means of the Internet.” Sharing economy also includes the shared creation, production, distribution, trade and consumption of goods and services by different people and organizations.
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With a dedicated web page entitled Sharing Economy Tax Center, the IRS are also explaining the term, as well as its tax implications, as follows.
As an emerging area of activity in the past few years, the sharing economy has changed how people commute, travel, rent vacation accommodations and perform many other 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 to generate revenue from assets they possess (such as cars and homes) or services they provide (such as household chores or technology services). |
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| 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. |
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| Many taxpayers use their phones and computers to provide services and sell goods. This includes the use of sites and apps to rent a home to travelers, sell crafts, or to provide car rides. Taxpayers who do this may be involved in the sharing economy. Participating in the sharing economy may affect a person’s taxes. This includes: |
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Part-time work;
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A side business;
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Cash payments received; |
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Income stated on a Form 1099 or Form W-2. |
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| 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, or services. |
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| Here are a few key points on the sharing economy: |
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Taxes. Sharing economy activity is generally taxable. It does not matter whether it is only part time or a sideline business, if payments are in cash or if an information return like a Form 1099 or Form W2 is issued. The activity is taxable.
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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. Form 1099-K is used to report income processed through third-party networks (like PayPal) if your earnings exceed $20,000 and you have more than 200 transactions.
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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. You can, for instance, claim the standard mileage rate, which is 53.5 cents per mile for 2017, instead of claiming the actual expenses. Similarly, you may write off commissions or other fees charged in a freelancer marketplace service.
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Rentals. If you rent out your home, apartment or other dwelling but also live in it during the year, special rules generally apply. You can use the Interactive Tax Assistant Tool, Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? to determine if your residential rental income is taxable.
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Estimated Payments. Taxpayers involved in the sharing economy often need to make estimated tax payments during the year to cover their tax obligation. These payments are due on April 15, June 15, Sept. 15 and Jan.15. Use Form 1040-ES to figure these payments.
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Payment Options. The fastest and easiest way to make estimated tax payments is through IRS Direct Pay. Or use the Treasury Department’s Electronic Federal Tax Payment System (EFTPS) 98005.
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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. File Form W-4 with the employer to request additional withholding. Use the Withholding Calculator on IRS.gov.
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If you are providing services and are not certain whether you are an employee or independent contractor, more information is available in Publication 1779 - Independent Contractor or Employee?.
Any of the key points mentioned here can be by itself the subject of one or more of our newsletters.
It is also worth mentioning that some accountants are starting to specialize in sharing economy tax strategies, but any skilled professional who specializes in freelance or small businesses will do just as well in guiding you through record-keeping, income, expenses, deductions, and taxes. |
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