Global Tax Insights
Tax Advice for Uber Drivers and Other “Sharing Economy” ProvidersSeptember 19, 2017
Did you pick up a position as an Uber driver? Renting one of your rooms out through Airbnb? Make sure you follow IRS tax requirements.
“Sharing economy” services are taking the country by storm. Millions of Americans use (or provide) Uber, Airbnb, TaskRabbit and other similar technologies daily. What exactly are these services? Sharing economy services allow individuals to share their own personal assets with other individuals for a fee, typically by means of the internet. How do taxes fit in, then? Well, it’s a bit complicated.
Sharing economy—What is it?
A sharing economy is an economic model in which individuals are able to borrow or rent someone else’s asset(s). Sharing economy services are most likely to be used when the price of a particular asset is high and use is only needed temporarily.
Uber- This app allows individuals to hire a private driver to pick them up & take them to their destinations with the tap of a button.
Airbnb- This is an online marketplace and hospitality service, enabling people to lease or rent short-term lodging including vacation rentals, apartment rentals, homestays, hostel beds, or hotel rooms
TaskRabbit- This is a mobile marketplace that matches freelance labor with local demand, allowing consumers to find immediate help with everyday tasks like cleaning, moving, delivery and handyman work.
4 key tax issues
Sharing economy activity is typically taxable. If you receive payments in the form of money, goods, property or services, you must report the income on your personal return. It does not matter if it is only part time or your sideline business. Separate cash tips are also treated as taxable income.
Keep in mind....
- If you receive large cash amounts, you must file Form 8300- Say your business receives more than $10,000 in cash from a customer from a single transaction or 2+ related transactions. Within 15 days of receiving this payment, you must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.
- There are deductions you can take as a provider - Generally you are permitted to deduct the “ordinary and necessary” expenses incurred as a “sharing economy” provider. For example, Uber drivers can deduct water bottles they buy for passengers, a portion of their cell phone bill (since they use them for the business) and car cleaning supplies. You can also use the standard mileage rates for 2017, so 53.5 cents per business mile in place of your actual expenses.
- You have estimated tax payment obligations- To cover tax obligations, Sharing economy providers must pay quarterly estimated tax payments. Sharing economy taxpayers who are employed at another job can avoid making estimated tax payments by having more tax withheld from their paychecks at the other job.
Recordkeeping is key- It is essential to keep documentation of all income in order to track deductible expenses and substantiate items reported on your tax returns. Some sharing economy companies make it easy to track your income, but some like TaskRabbit for example, only give you a 1099-K form (for reporting your income) if:
- TaskRabbit sent more than $20,000 to your bank account
- You completed more than 200 tasks during a reporting year.
- If you rent out your home, special rules apply. Check out our blog, “What Expenses Can you Deduct if you Rent Out Your Vacation Home?” If you’re renting your home in RI, check out our blog, “Short Term Residential Rentals: FAQs”.
Though the sharing economy business is something anyone can pick up as a side venture, it does come with IRS requirements. Many states are struggling to apply these tax laws to the technological innovations that we continue to see. Contact me or any member of our Tax Services Team for more information.