(Washington, DC) August 26, 2016--There’s a whole new world of commerce out there that’s being called the “sharing economy” and while it might appear to be a simple exchange, it comes with a lot of tax implications. Airbnb, DogVacy, TaskRabbit and Liquid are all examples of the trend toward individuals and groups using the Internet to generate revenue from assets they own, such as houses, cars and bicycles, and provided services.
“There’s a real danger here that people engaged in the ‘gig economy’ won’t understand that all income has to be reported on their tax returns, even if they are paid in cash or the activity is only part-time or occasional,” said Kerry Freeman, an enrolled agent and owner of Freeman Income Tax Service in the Phoenix area. “Estimated quarterly payments may be necessary, and when you're selling cufflinks on Etsy, for instance, the fact that you could be setting yourself up for a letter from IRS is probably the last thing on your mind.”
According to Freeman, taxpayers may also be missing out on business deductions they are qualified to claim, such as mileage on leased cars. The rules on rental income can be particularly tricky, from record keeping requirements to the tax form necessary for reporting the income (the answer is not intuitive) to the taxes states and localities require. In some circumstances, rental income does not need to be reported at all for federal tax purposes.
As you can see, there’s a lot taxpayers need to know before taking part in the sharing economy. The IRS this week launched a new Sharing Economy Resource Center on IRS.gov. To ensure that you’re on top of all the tax aspects of the sharing economy and avoid a potential misstep, the IRS encourages taxpayers to speak with a trusted tax professional. The National Association of Enrolled Agents’ searchable “Find a Tax Expert” directory can help taxpayers find a licensed tax professional in their area. Enrolled agents (EAs) are licensed by the U.S. Department of the Treasury and overseen by the IRS. In order to earn the credential, EAs must pass a stringent three-part exam on taxation. To maintain the credential, they must report annual continuing education on tax to the IRS.
The National Association of Enrolled Agents (NAEA) is the professional society that provides America’s Tax Experts®, enrolled agents, with resources, education and networking and represents their interests to government, business and the general public. You can find an enrolled agent in your area at taxexperts.naea.org.