Whether you make a living renting rooms to those searching for unique accommodations or you’ve picked up a side gig shuttling people from one place to another, if you’ve ever offered products or services to customers through an online platform (think ride sharing, freelancing, crowd funding, etc.) you are a part of the sharing economy. And whether you know it or not, there are specific tax guidelines to be aware of when operating in this space.
According to the IRS, “the sharing economy allows individuals and groups to utilize technology advancements to arrange transactions to generate revenue from assets they possess – (such as cars and homes) – or services they provide – (such as household chores or technology services).” While the sharing economy continues to develop and evolve, there are still considerations to keep in mind when engaging in this area. Read on to learn about a few of them.
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Financial Considerations In The Sharing Economy
Sharing economy participants should take the following points under consideration:
- Filing Taxes – Business income generated via sharing economy activity is generally taxable, including whatever tips you may receive. Failure to report your income will likely draw the attention of the IRS. Be sure to avoid future issues by accurately recording all income streams on a Schedule C or C-EZ form. Many small business owners in a sharing economy fail to file their earnings correctly. Don’t be one of them.
- Estimated Payments – Businesses participating in the sharing economy are expected to make estimated tax payments every quarter. This IRS form, Estimated Tax for Individuals can be of major assistance when trying to figure out your payment amounts. To make your payments, the IRS has set up a Direct Pay You can also make payments to the Treasury Department via its EFTPS system.
- Cash Payments Greater Than $10,000 – If your business receives payment greater than $10,000, you must file Form 8300. This form is unique in the fact that it must be filed within 15 days of when you received the large cash payment.
- Unique Deductions – Business expenses tend to add up, especially when operating within the sharing economy. The good news is that you may be able to deduct these expenses from your business’s income. Make sure you claim all the deductions you’re owed by actively managing your company’s expenses.
- Recordkeeping Is Key – Your business’ financial story is only as good the information you record. Make a habit of recording your transactions on a daily basis to avoid costly mistakes.
Being a small business owner in a sharing economy has its upsides. But, make sure you consider every possible outcome when it comes to managing your business’s finances.
Our trained professionals can help your small business report its finances while helping you find success in today’s new sharing economy. Email Rea & Associates to learn more.
By Maribeth Wright, CPA (Retired)
For more insight about the importance of tax prep, check out these articles:
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