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Tax Tips for the Sharing Economy

The new “sharing economy” may create some tax confusion this year. People who are new to the world of Airbnb, Uber, WeWork and other web-based data-driven payment portals may find taxes have suddenly grown quite complicated.

The IRS launched its new Sharing Economy Tax Center last August but it’s probably getting more attention now that tax time is just a few weeks away. The webpage offers information about a variety of issues including “rules for home rentals,” “depreciation,” “business expenses,” and “determining whether individuals providing services are employees or independent contractors.”

AARP writes that the website was created after National Taxpayer Advocate Nina Olson told Congress that many new sharing economy entrepreneurs were confused about their tax obligations. It says about two months later, the IRS created and launched the webpage, because of course, we all need to keep Uncle Sam happy.

So newbies may be in for a little extra work this tax season if they haven’t prepared properly. Uncle Sam will let you deduct all kinds of things against your income, so long as you’ve kept good records.

This podcast – transcriptions – should not be construed as tax advice. This is just a heads up about a few things you should be asking your tax advisor or accountant — especially, if you are new to the idea of deducting business expenses.

One of the tricky parts is determining how much of the time you used your car or your home for personal use, and how much for business. This is one reason why good record keeping is important.

Generally, for rental property, you can deduct things like mortgage interest, real estate taxes, casualty losses, maintenance, utilities, insurance, and depreciation. Special rules apply when the property is “shared” with the owner. Ask your tax accountant.

For people who rent out rooms in their homes, you have to determine what percent of your home is used for the rental as well as the number of days it was rented. You can then deduct applicable expenses according to the final figure. That’s similar to a home office deduction, which is also based on square footage and how much of the year you used it as a home office.

Another difference between typical rentals and home-sharing properties — you cannot report a loss if you are sharing. The most you can deduct is the amount that you earned renting it out. But, you may be able to carryover that loss to the next year.

Another interesting tax tidbit:

If you only rented a room for 14 days or less per year, you don’t have to report any of that income. That money is yours with no tax obligation.

If you are renting out an entire home as a short-term rental, the calculations are easier, unless you also use that home for, let’s say, a family vacation or part-time residence. In that case, you can only deduct part of the expenses based on the number of days your family used the home compared to the number of days it was rented. Expenses are divvied up according to that ratio.

Deductions are also different for WeWorkers or other office-sharing entrepreneurs. In this case, whatever you pay towards rent that space is deductible.

CPA Practice Advisor says the cost of finding work is also often deductible, especially if you are itemizing. If you pay a fee to an agency to help you find work, you should be able to write that off.

Mileage is also deductible for business-related travel and a very important deduction for ridesharing drivers. The basic deduction is 16 cents a mile for 2016 tax returns. Ride-sharing drivers can deduct much more, however. That deduction is 53.5 cents a mile.

If you’d prefer to deduct vehicle operating expenses such as repairs, oil, gas, and insurance, you can choose that option instead of the mileage. You can’t do both. It’s one or the other. Both options allow you to deduct tolls and parking.

Health care costs may be deductible if you itemize as a self-employed person. You need to keep track of health insurance costs along with out-of-pocket expenses like prescription drugs, and the mileage to and from medical appointments. You may need to meet a minimum expense for this deduction.

If you’re self-employed, you’ll also be responsible for paying self-employment tax. That’s about 15 percent on your first $127,000 worth of income.

People in the sharing economy may also find a 1099-K in their mailbox. The IRS requires third-party companies that process payments to send you a form 1099-K. Airbnb and Uber fall in this category. The IRS says the form is to help improve voluntary reporting, which can also mean: “Uncle Sam is watching you.”

Airbnb only issues 1099-K forms for hosts who have earned more than $20,000 and had 200 or more reservations. Hosts who earn less are still responsible for reporting their income, however, they just won’t get a 1099-K.

The basic rule of thumb, according to Uncle Sam: Expenses are deductible if they are “Ordinary and Necessary”. And when you are self-employed, you may also need to pay quarterly taxes.

If you need extra time to sort all this out, you are in luck. Tax Day this year is April 18th.

This is a transcript of a previously-aired “Real Estate News” podcast broadcast by Kathy Fettke, co-CEO and founder of the Real Wealth Network.

About the Author

Kathy Fettke is the founder and co-CEO of Real Wealth Network, a passive real estate investing club with more than 24,000 members. She’s also the author of  “Retire Rich with Rentals” and host of “The Real Wealth Show,” a featured podcast on iTunes with listeners in 27 different countries. Kathy is passionate about understanding real estate cycles so she and her members can invest in the best markets and best deals available today. She is frequently invited to share her expertise on CNN, CNBC, Fox News, NPR, CBS MarketWatch and in the Wall Street Journal.  Kathy received her BA in Broadcast Communications from San Francisco State University and worked in the newsrooms of CNN, FOX, CTV and ABC-7. She’s past-president of American Women in Radio & Television. Kathy loves the freedom that real estate investing can bring. She lives in Malibu, California, with her husband and two daughters and enjoys traveling, hiking, rock climbing, skiing, figure skating and surfing. Contact her at kathy@realwealthnetwork.com.