From renting spare rooms and vacation homes, to car rides or using a bike... name a service and it’s probably available through the on-demand economy. Taxpayers who participate can find helpful resources in the IRS Sharing Economy Tax Center on IRS.gov. It helps taxpayers understand how this activity affects their taxes. It also gives these taxpayers information to help them meet their tax obligations.
Here are six things taxpayers should know about how the on-demand economy might affect their taxes:
The activity is taxable
It is taxable even when:
- The activity is only part time
- The activity is something the taxpayer does on the side
- Payments are in cash
- The taxpayer receives an information return – like a Form 1099 or Form W2
Some expenses are deductible.
Taxpayers who participate in the on-demand economy may be able to deduct certain expenses. For example, a taxpayer who uses their car for business may qualify to claim the standard mileage rate, which is 58 cents per mile for 2019.
There are special rules for rentals
If a taxpayer rents out their home or apartment, but also lives in it during the year, special rules generally apply to their taxes. Taxpayers can use the Interactive Tax Assistant tool, Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? to determine if their residential rental income is taxable.
Participants may need to make estimated tax payments
The U.S. tax system is pay-as-you-go. This means that taxpayers involved in the sharing economy often need to make estimated tax payments during the year. These payments are due on April 15, June 15, Sept. 15 and Jan. 15. Taxpayers use Form 1040-ES to figure out these payments.
There are different ways to pay
Taxpayers should check their withholding
Taxpayers involved in the on-demand economy who are employees at another job can often avoid making estimated tax payments by having more tax withheld from their paychecks. These taxpayers can use the Withholding Calculator on IRS.gov to determine how much tax their employer should withhold. After determining the amount of their withholding, the taxpayer will file Form W-4 with their employer to request the additional withholding.