So, you’ve joined the gig, or sharing, economy, making money by renting out rooms via Airbnb, giving strangers a ride in your car, or taking on chores that another person doesn’t want to do. This is a great way to make a little money on the side or full time. The one thing that will trip up many of you is keeping good records of income and expenses and paying taxes on this income. You’ll likely owe income taxes on your earnings even from part-time gigs. And in the sharing economy, it’s up to you to maintain good records and make sure you’ve set aside enough money to pay the IRS. If you’re driving for Lyft or Uber, or running errands for TaskRabbit, the IRS considers you self-employed. Your earnings will be subject to regular income tax. But if your profit is $400 or more per year, you will also owe self-employment taxes on the amount that exceeds that threshold.
Self-employment taxes covers both employer and worker contributions to Social Security and Medicare. You’ll pay a self-employment tax at a rate of 15.3 percent on this net income. With self-employment income, you may have to make estimated tax payments each quarter by the 15th of April, June, September and January. Failing to do so can lead to a penalty for underpayment of taxes. It doesn’t take much for the IRS to consider you a landlord. Rent out your residence — or even just a room in it — for more than 14 days during the year, and it’s considered a rental property. Less than 14 days, good news, it does not need to be reported and it is not taxable income. You’ll pay regular income taxes on rental income. As a landlord, you likely won’t be subject to self-employment tax unless you provide “significant services” such as transportation, meals or other concierge-type services and you can trigger self-employment taxes.
As always, consult your tax advisor to determine your specific situation. It’s not all about paying taxes. You should be able to deduct some or all of your work-related expenses and lower your tax bill. For instance, ride-sharing drivers can deduct fuel, repairs, maintenance, tolls, insurance and other car-related expenses. You have to make sure, however, that you claim only the portion of those costs related to the ride-sharing job — not for personal use of your car. Mileage should be tracked daily and the log should reflect whether it is personal or business related. There are great apps out there to help you easily track this once onerous task. Check out MileIQ, TripLog or Mileage Expense Log. If you’re renting out your home, you may be eligible to deduct advertising, depreciation, utilities, insurance and other rental expenses. As with drivers, you will only be able to deduct a portion of these expenses that are related to the business — not the full cost if you’re using the home for personal use.
In most cases, businesses including Uber and Lyft, will provide 1099-K or 1099MISC tax forms to you and the IRS that track payments made to you. Just because you don’t get a 1099-K doesn’t mean you don’t owe the taxes – all of your income, including tips, should be reported. For good, simple recordkeeping for your gig, I recommend you set-up a separate bank account for depositing income and paying expenses. Setting aside one credit card for business expenses will also make the task of recordkeeping much simpler. There are also many accounting software packages to help you keep track of income and expenses. Find something that will work for you and don’t leave the task for the end of the year just before tax season… Or, hire a professional to keep your books and advise you of opportunities to reduce taxes and/or expenses.
Anita Jean is an Enrolled Agent, America’s Tax Experts. She owns Financial Fitness Tax Service and can be reached at 940.365.3115 or 5099 US Hwy 377 S, Ste. 400 in Krugerville.