Are you receiving income from the “Sharing Economy”? You might owe taxes and penalties!
By Stanley I. Foodman
Individuals and groups utilizing technology to engage in transactions for generating sources of revenue from assets they own (homes or cars) - or services they provide - are part of the “Sharing Economy.”
There are income tax filing requirements for reporting self-employment income, home rental income or determining if Individuals providing services are employees or independent contractors.
Although a taxpayer receiving income derived from the Sharing Economy might not receive a Form W-2 or Form 1099, income generated from side jobs or self-employment is nevertheless reportable.
Income that is usually not subject to withholding is derived from:
- gains from the sale of assets
- prizes and awards; or
- not enough being withheld from taxpayer’s salary, pension, or other income
Taxpayers pay their income tax either through income taxes withheld from payroll checks, estimated tax payments, or a combination of both. If taxpayers don’t pay enough income tax by the payment due date, the IRS will impose penalties. Taxpayers that are not under the control of an “employer” (such as the participants of the Sharing Economy) are required to utilize the Estimated Tax Method. A rule of thumb is that if a taxpayer owed additional taxes in 2016, he will most likely have to pay estimated taxes for 2017. Estimated taxes can be paid directly to IRS electronically or by check on April 15th, June 15th, September 15th and January 15th.
The increase in the size of the Sharing Economy is the result of people feeling more comfortable with online platforms to share their underused assets and a need to make extra income. The “what is mine can be yours” sentiment coupled with technology, social media and collaborative attitudes has caused a rise in the revenue derived from the Sharing Economy.
The IRS Data Book for 2015 and 2016 reports that taxpayers have not been adequately educated regarding how to report “self-employment” income. IRS statistics covering the five years from 2010 to 2015 reveal an increase of 40% in the number of taxpayers that paid penalties for underestimating their taxes.
Don’t be a victim of your own making. Taxpayers in the Sharing Economy should seek professional tax advice as their tax situation will get complicated. Taxpayers don’t want the IRS to figure out the penalty for underpayment and then send them a Bill.
December 11 - 2017