The sharing economy is providing taxpayers with new ways to earn income. It’s also making their tax returns more complex. If you participate in the sharing economy, you need to understand the tax consequences to avoid potential IRS tax problems.
Income and Estimated Taxes
Income earned from rideshare driving, using your home as a short-term rental, or other sharing economy activities is all taxable income. You need to report it on your tax return.
You may receive a 1099 or a 1099-K from a third-party payment processor. The IRS is also getting a copy of this form and will notice if you don’t report the information correctly on your tax return.
You should also realize that the money you make is pre-tax income. If you’ve never worked as an independent contractor or business owner, you might not realize that you need to withhold your own self-employment taxes and estimated taxes.
This can lead to unexpected tax bills and tax penalties. You should either pay estimated taxes four times a year or increase the withholding at your day job to account for the extra income you’re earning on the side.
If you don’t do one of these things, you might accumulate IRS tax debt and be unable to pay it off all at once.
Complex Tax Returns
While some taxpayers still earn all of their income from one job, it seems that people are increasingly having multiple sources of income. That means you’ll have a more complicated tax return.
Rideshare and delivery drivers may work for Uber, Lyft, Amazon Flex, and other companies—all in the same day. Each one could give you a tax form that needs to be included in your tax return.
You also need to report your business expense deductions correctly. That could include mileage, depreciation, car payments, insurance, phone bills, and other expenses.
If you can’t figure all it this stuff out on your own, work with a qualified tax preparer. You don’t want to risk an IRS tax audit just because you weren’t sure how to do your own taxes.
If you’ve received correspondence from the IRS or owe back taxes due to your sharing economy activities, contact a tax attorney for assistance.
The Gartzman Law Firm can help you with audits and other IRS tax problems. Use our contact form to request a consultation with an Atlanta tax resolution attorney.