Our New York City CPA and NYC tax accountants can assist self-employed individuals participating in the “gig” or sharing economy. In 2017, 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. These taxpayers can visit the Sharing Economy Tax Center on the IRS website to find resources that can help them meet their tax obligations.
Here are six things taxpayers should know about how the sharing economy might affect their taxes:
Taxes. Sharing economy activity is generally taxable. This includes:
- Part-time work.
- A side business.
- Cash payments received.
- Income stated on a Form 1099 or Form W-2.
Deductions. Some taxpayers can deduct their business expenses . For example, a taxpayer who uses a car for business use often qualifies to claim the standard mileage rate.
Rentals. Special rules apply to a taxpayer who rents out a home or apartment, but who also lives in it during the year. Publication 527 , Residential Rental Property (Including Rental of Vacation Homes), has more information about these rules. Taxpayers can also use the Interactive Tax Assistant Tool. This tool is titled Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? It walks a taxpayers through a series of questions to determine if their rental income is taxable.
Estimated Payments. Taxpayers can pay as they go, so they don’t owe. One way that taxpayers can cover the tax they owe is to make estimated tax payments during the year. These payments can help cover their tax obligation. Taxpayers use Form 1040-ES to figure these payments.
Payment Options. The fastest and easiest way to make estimated tax payments is through IRS Direct Pay . Taxpayers can also use the Treasury Department’s Electronic Federal Tax Payment System .
Withholding. Taxpayers involved in the sharing economy as an employee might want to review their withholding from that job and any other jobs they might have. They can often avoid making estimated tax payments by having more tax withheld from their regular paychecks. These taxpayers can file Form W-4 with their employer to request additional withholding. They can also use the Withholding Calculator on IRS.gov. This tool helps determine if they are having too much or too little tax withheld from their income.
Are you a freelance professional or self-employed individual? Contact us to learn more about participating in the sharing economy and how it may affect your taxes.