The gig economy is booming. In 2016, a TIME poll found that 45 million Americans offered some kind of good or service through an online platform, whether it was running errands, renting out their homes, or offering rides in their cars. With so many people earning extra income this way, you can bet that Uncle Sam wants its fair share of those earnings.
Understanding some basic rules about taxes in the gig economy can help you avoid frustration and penalties.Renting out your home
At $924 per month, Airbnb hosts command the highest average monthly income out of all others taking part in the sharing economy. Here are some key things to keep in mind if you rent your space. (See also: 13 Things I Learned From Renting Out My Home on Airbnb)
1. The 14-day rule
According to the IRS, if your rental property also serves as your residence, and you rent out the space for no more than 14 days during the year, you don’t have to report those earnings as income. Note that you also cannot claim any deductions from rental expenses if you rent for fewer than 14 days per year.
Airbnb and similar companies will still report your earnings even if you’re under the two-week threshold. But as long as you provide documentation that you meet the 14-day rule, you don’t have to include rental income on your federal return. If you do have to report income, use Schedule C or E of Form 1040.
2. Deductible expenses
The IRS allows you to deduct a long list of applicable costs for your rental operation, including advertising, cleaning and maintenance services, utilities, property insurance, and property taxes. Check the rental section on IRS Publication 527 for a full list of eligible expenses.
You can deduct 100 percent of direct rental expenses such as fees to Airbnb and rental insurance, and allocate a portion of general expenses such as mortgage interest and utilities. If you only rent out a room that is one-sixth of the size of your home, you can only allocate one-sixth of a general expense.
3. Form 1099-K
When you earn over $20,000 and make over 200 transactions in a calendar year, Airbnb will issue you a Form 1099-K. Airbnb will mail you this form and keep an electronic copy under “Payout Preferences.” This form is an IRS information return used to report certain payment transactions, which improves your voluntary tax compliance.
4. Pay attention to local occupancy taxes
On top of the IRS, you should also keep an eye on state and local government agencies. For example, throughout 2017 the House Finance Committee of Hawaii is evaluating an “Airbnb bill” to collect hotel room and general excise taxes from Hawaii-based short-term and vacation rentals.
5. Report rental losses
In the event that your rental operation goes sour, you can deduct losses up to applicable limits. Let’s imagine that you own a $400,000 home and that you spent $400 to get a room ready for rental. However, nobody took you up on your offer. Per the IRS at-risk rule (for property placed in service after 1986), you can write off up to $400,000 in rental losses. So, you can deduct the $400 as a rental loss on your return.
Driving people in your car
Lyft and Uber drivers make an average $377 and $364 per month, respectively. Here are some tax-related pointers to keep in mind when declaring that income. (See also: How to Get a High Rating and Make More Money as an Uber Driver)
1. Keep track of all 1099s
Unlike a full-time employer, Uber and Lyft won’t issue you a W-2….
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