Making an income by renting an extra bedroom or using your vehicle to transport people is a relatively newer type of income sometimes called Sharing Economy. This type of work includes Uber, Lyft, and Airbnb among other platforms where help people who commute, rent vacation accommodations, have a place for their dogs to stay while on vacation, or travel. While you can make some really lucrative income with these types of venues, there are also a few tax issues that you should be aware of.
This new type of income has taken off enough that the Internal Revenue Service set up a page on their website that helps explain a little about it. Here are a few of the highlights that you need to know if you participate in any one of these revenue streams.
Estimated Tax Payments
One of the tips is about making estimated tax payments. These have to be made by many businesses and those in the Sharing Economy are no different. Estimated tax payments are due on April 15, June 15, September 15, and January 15 and help ensure that you fulfill your tax obligation. There are penalties for those who do not pay on time and even if you submit a loss, you still must file.
Just like with other forms of income, even if you do not get a W-2, 1099, or other income tax statement, you are still responsible for reporting your income and paying taxes on it. It does not matter if every transaction was in cash, if the work is just part time, or if it is an additional type of income that is not your main source of income. Simply put, if you make the income, you have to report it and be responsible for the taxes.
There are special circumstances if you rent your home or apartment that is also used as your own residence as a taxpayer. While you typically have to report all rental income, if your apartment or home was rented out less than 15 days, you do not have to report that income as long as it was within the year. On the other hand, you cannot deduct expenses for this either.
The good news is that with this type of income, it is similar to other types of businesses where you can take out certain deductions that are related to your business. For instance, if you drive for Uber or Lyft, you may be able to take your car’s maintenance costs (oil changes, new tires, etc) off of your taxes as deductions so that you won’t owe as much or may even get a refund. The circumstances vary so be sure to make sure that you qualify to take these deductions.
Keep in mind that if you use your car or residence for personal use, you are only allowed to take the amount of deduction that applies to how much time you spend using the property for income. For instance, you drive for Lyft for half of the time and use your vehicle for personal use the other half of the time. In this case, you would only be able to take the deductions up to 50% on any that you qualify for. So, your oil changes and new tires would be half of the cost within the deduction.
The same applies to a home where you rent a room – you can only use the deduction percentage that equals the same amount that you use the home for business plus the square footage comes into the equation.
If you work within any of these types of income resources such as DogVacay, Lyft, Uber, Airbnb, etc and are not sure about your taxes and the best way to file, feel free to contact us so we can answer any questions you may have.