Ah, tax season—that time of year when we dig out boxes of receipts, add up business mileage and, if we’re active in the sharing economy, wonder how on earth to handle taxes when it comes to room rentals, rideshares, crowdfunding donations and all that other good sharing stuff. In several aspects of the sharing economy, legislation lags behind what’s happening on the streets, in our neighborhoods, and in our homes, as we trying to apply dated rules to a new economy. Taxes are no different.
Recently, Peers teamed up with Freelancers Union to co-host a live, online Q&A titled Taxes and the Sharing Economy. Featuring CPA Jonathan Meadows answering a slew of questions about topics such as business expensing room rentals, claiming Kickstarter income, and sales tax on collaborative consumption transactions, the Q&A was an opportunity for those working in the sharing economy to learn how to handle their taxes this year and prepare for next. Here's what was covered:
How do I file the Airbnb 1099? Do I do a Schedule C and become a sole proprietor for the business of renting out half of my space in NYC?
In general, you report the income on Schedule E and report associated expenses and pay taxes on profit. For the period rented, you can allocate your rent, electricity and other costs as well as any direct costs such as listing fees or cleaning for the rental period. Also, there is a special rule if you use a dwelling unit as a personal residence and rent it for fewer than 15 days a year. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses. See the IRS site: http://www.irs.gov/taxtopics/tc415.html
Am I required to claim income that is designated as a donation?
It depends. If you promise to give a good and service then it's taxable. If it's really a gift then no. Sites such as KickStarter generally promise a good or service in exchange for money. As such, the money you receive is taxable. However, you are theoretically raising money to pay for services to generate the product and you can claim these costs as expenses to reduce your taxable liability.
Who is responsible for paying sales tax? The platform provider or the individual selling the product on the platform?
Ultimately it's the seller who is responsible for collecting the appropriate sales tax. Out-of-state purchasers may be responsible for paying a Use Tax in their home state. The peer-to-peer network, to be on the safe side, should have a disclaimer.
Can independent contractors write off co-working or renting desk expenses?
Yes they can — but they need to be careful as it may impinge on taking a home office deduction.
If I received far less money for renting out my room than I pay in rent, does my rent still count as a business expense?
You can only claim your rental expense for period of rental. This is considered passive income and there are generally special rules for claiming losses on passive income. Consult the IRS website and in particular passive activity losses.