Ever thought about becoming an Uber driver part-time? How about renting out a spare bedroom in your home? Maybe offering your dog walking services via Craigslist?
Any of these actions would put you in what the IRS refers to as the “sharing economy.”
What is the Sharing Economy?
Although “sharing” can imply the word “free,” it is not what IRS means when they use the phrase. The official explanation of the term on the IRS website is:
“…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).”
Even though you don’t necessarily receive a 1099 or some other statement for this income, it can still be taxable.
It’s not just cash (or credit card) payments the IRS is concerned with, either. If you receive goods, property or services in exchange for your labor or service, it can be considered taxable income.
I’m Part of the Sharing Economy. What do I Need to Know?
Whether you are working part-time, have a side business, or receive a cash payment for a service, you will most likely owe income tax on that income.
If you are involved in the sharing economy yet also an employee, you’ll want to review your withholding elections on the paycheck from your employer.
Employee Who “Shares” on the Side
Let’s say, for instance, that you are working full-time as a graphic designer.
After hours, you have a side business using your skills and receive payments from clients.
In this case, your full-time job is withholding taxes from your paycheck based upon the income you receive from that job. However, it does not account for any of your side business income.
Money from a side business generally does not have tax withheld from payments. This can lead to an underpayment of taxes for the year and a big tax bill in April.
To avoid this, you will need to calculate what you will owe based on your income, tax rates, and any deductions. Then, you will either need to make estimated tax payments or up your withholding elections from your full-time job to cover your side-gig income.
A Full-Time “Sharer” (i.e., Self-Employed Individual)
Some folks are “all in” on the sharing economy – also called the gig economy, on-demand economy or access economy – as a self-employed individual. If that’s you, no one is withholding taxes from your income and you’ll need to file estimated taxes on a quarterly basis.
Are You Paying Enough Throughout the Year?
Our pay-as-you-go tax system means that you could be on the hook for penalties for underpayment of taxes throughout the year. You can avoid this through:
- Owing less than $1,000 in tax total at the end of the year, or
- Paying at least 90% of the tax for the current year, or
- Paying 100% of the tax shown on the return for the prior year, whichever is smaller
An Enrolled Agent can help you determine if you should pay estimated taxes and if so, how much. If you are receiving income from multiple sources, it’s critical to ensure you are paying what you need to (and not more or less).
************************************************
Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting Services as well as the Enrolled Agent and Certified Tax Resolution Specialist for SFS Tax Problem Solutions.
************************************************
Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.
The book is available in paperback and ebook on https://Amazon.com
************************************************
For more on SFS Tax Problem Solutions, visit: http://sfstaxproblemsolutions.com/
For more on SFS Tax & Accounting Services, visit https://sfstaxacct.com/
************************************************
738 Colorado Avenue Stuart, FL 34994
************************************************
Phone: 772-337-1040
************************************************
https://twitter.com/SFSTax/
https://linkedin.com/company/sfs-tax-problem-solutions
************************************************
Leave a Reply