Tax Tips: “I used my vehicle”

You don’t have to have been an Uber or Lyft driver for there to be special considerations to your taxes relating to use of your personal vehicle: Instacart shoppers or delivery drivers that use their own vehicle should also be aware of the additional deductions available to them.  Shared Economy CPA has provided the following most common mistakes made by people who use their personal vehicle to earn in the sharing economy:

1. Taking the Standard Mileage and Gas Deduction. Should you take the standard mileage deduction, or should you deduct actual expenses?  Once you pick a method you can’t change, so choose wisely or seek professional tax advice.

2. Not deducting your cell phone bill or Spotify premium bill.  If using your cell phone or having a Spotify premium account were “ordinary and necessary” costs to your business, they are deductible.  Make sure you calculate the percentage of the cost used for business, and document why having a cell phone and Spotify premium are ordinary and necessary business expenses.

3. Not taking the commission deduction.  Some “rideshare” drivers at one point paid up to 25% of their earnings towards commission!  For example, New Year’s Eve surge rate in Orlando, Florida was 8.9X, that means you can potentially leave 8.9X of commission deduction on the table.  Make sure you deduct all commission charged by the platform you used.

4. Keeping poor and inadequate records of your business expenses.  Make sure you check your bank records for expenses incurred that were ordinary and necessary to running your business, but forget the Hello Kitty bobble-head (you might think it was necessary, but the IRS won’t.)

We have provided these tips to you for informational purposes only.  Everyone’s tax situation is different, so please contact a tax professional if you have questions specific to your personal situation.  If you are planning on hiring a tax professional, take a look at the Tax & Finance services available through the Support Marketplace.  Thanks again to the Shared Economy CPA for sharing their expertise with the community.

Have a specific question that wasn’t addressed here?  Add your question in the forum and we’ll do our best to track down an answer for you.

 

 

Tax Tips: “I rented my home”

If you rented your home on Airbnb, VRBO, HomeAway, FlipKey, Homestay or another “homesharing” website, there are rules that apply specifically to rental income that you need to be aware of.  Shared Economy CPA has shared with us the 6 ways hosts are overpaying their taxes – don’t be one of them!

 

1. Not documenting all business expenses.  Did you buy new linens for your guests?  Purchase Homesharing Liability Insurance to make sure you have the legal protection you need?  Buy some local art to decorate your guestroom and welcome your guest to the area?  If you rented a home that you don’t live in, did you drive to the location to properly manage it?  All “ordinary and necessary” expenses to operate your business are tax deductible, so make sure you look back through your bank statements and credit card bills to make sure you’re not paying tax on expenses you incurred to run your business.

2 – Not deducting the 6-12% guest service fees and the 3% host service fees.  Your 1099 usually reports the gross not net income you earned, which means the total includes the commission or service fees charged to you by the company (Airbnb, VRBO etc.) that you used. Make sure you deduct the fees as these were “ordinary and necessary” expenses to run your business.  (This is the most common mistake homesharers make.)

3 – Schedule E vs. Schedule C.  Depending on how involved you are in managing your rental, it might make more sense for you to use Schedule E rather than Schedule C to report your income from renting your home.  This largely depends on how much time you spend on the business, and if you are involved in the day to day operations.  If you are using an accountant, make sure they consider which schedule will work best considering the type of renting activity you’ve been earning from.

4 – Not knowing all of the rule exceptions.  Ever heard of the Real Estate Professional exception?  What about the Mom and Pop Exception?  If you’re using an accountant, make sure they have.  If you materially participate and spent more than 750 hours running your rental, then the Real Estate Professional exception may apply to you.  If you are not closely involved in managing your rental and you earned less than $100k, the Mom and Pop exception may apply and you could deduct passive losses.  Not knowing these exceptions could result in overpaying on your tax bill, so make sure you’re using a professional who is familiar with them.

5 – Incorrectly classifying expenses.  Your tax return preparation fees are a business expense if you are including income through your sole proprietorship, so they should be deducted under Schedule C, not Schedule A.  Make sure that you’re not only documenting all of your expenses, but classifying them correctly.

We have provided these tips to you for informational purposes only.  Everyone’s tax situation is different, so please contact a tax professional if you have questions specific to your personal situation.  If you are planning on hiring a tax professional, take a look at the Tax & Finance services available through the Support Marketplace.  Thanks again to the Shared Economy CPA for sharing their expertise with the community.

Have a specific question that wasn’t addressed here?  Add your question in the forum and we’ll do our best to track down an answer for you.

 

Taxes in the “sharing economy”: what’s different?

You’re not the first person this has happened to: you posted your spare bedroom on Airbnb to make a little extra income, you indulged your passion for food by cooking on Feastly, or you earned some extra cash on your commute by picking up rides on Lyft, and you found yourself with a 1099 at the end of January reporting your “Miscellaneous Income.”  While you might have thought you were making a little extra money on the side, in the eyes of the IRS you were operating as sole proprietor of a business, and the income from your “sharing economy businesses” will impact your tax return this year.

As this is your first time filing 1099 income, Shared Economy CPA, who specialize in the sharing economy, have provided the tips below to help you navigate reporting your new business income:

1: Schedule C

Schedule C is the “schedule used to report income or loss from a business you operated or a profession you practiced as a sole proprietor.” (IRS)  If you’ve never earned income outside a traditional employment situation, this will likely be the first time you use Schedule C on your tax return.  Schedule C is attached to your Form 1040.

2: Get your 1099s together.

Each company you earned money through (e.g. Airbnb, Uber, TaskRabbit) will send you a 1099 to report your income (and they’ll also send a copy to the IRS.)  You’ll need to report all the income on your 1099s on Schedule C, so you’ll need to have a 1099 from each company you earned through before you’re ready to your finish Schedule C.  You should receive your 1099s by January 31, so if you haven’t received them yet, you should soon.  You’ll want to make sure your 1099s reconcile with the income deposited into your bank accounts by each company, and that the income on Form 1099 matches with the 1099 income on Schedule C Part 1.

3: Deduct your Fees and Commissions

One of the most common mistakes sharing economy earners make on their taxes is not deducting the fees and commissions charged by the sharing economy companies from their income.  All sites include a charge to you for using their website to “run your business”, usually called a commission or a service fee.  Your 1099 will usually include this fee in the total income, rather than deducting it from the total.  This fee is an “ordinary and necessary” expense to running your business, so make sure you claim this cost to you as a deduction.

4: Document your expenses.

You have to spend money to make money!  You likely had to purchase new linens for your home rental, have your car washed for Lyft, have a cellphone plan with data for Instacart or buy ingredients for your Feastly menu.  Any costs that are both “ordinary and necessary” for the activity you were earning from, are tax deductible.  Make sure you have documentation for your expenses, and list them for your records.  If you purchased something that you used for both personal and business activities, calculate the percentage it was used for personal activities, and the percentage it was used for business activities, and document your calculation clearly.  Be as detailed as possible, for your reference in the future or for your accountant if you choose to use one.  Report all of your business expenses on Schedule C Part II.

5: File your tax return by April 15

Once you’ve finished Schedule C, you can finish up the remainder of your Form 1040 (your Individual Income Tax Return) with W-2 income, if you have any, and personal expenses.

If you did not make quarterly tax payments or adjust your W-2 withholding status to account for your additional income, you might be surprised with a tax bill that is higher than you expected.  To avoid this in the future, make estimated payments throughout the year to reduce the shock of an annual tax bill and make next April a little more pleasant.

If you don’t think you’ll be able to gather all of your documents and file your tax returns by April 15, request an automatic tax extension to give yourself an extra six months to file.  However, this doesn’t mean you have an extra six months to pay your taxes, so you will need to reasonably estimate your tax owed using the information you have available and make your payment by April 15th.  If you don’t have enough funds to cover your tax owed, you will need to pay interest on your unpaid taxes, so pay what you can to limit your interest cost.

Tax Tips: “I used my vehicle”

If you rented your home or used your personal vehicle for your business activity (e.g. Airbnb, VRBO, Uber, Lyft, Instacart), make sure you read Shared Economy CPA’s tax tips as there are deductions and rules that relate specifically for those activities.

Click here if you rented your home (e.g. Airbnb, VRBO, HomeAway, FlipKey, Homestay.)

Click here if you used your personal vehicle (e.g. Lyft, Uber, Sidecar, RelayRides, Getaround, Instacart.)

We have provided these tips to you for informational purposes only.  Everyone’s tax situation is different, so please contact a tax professional if you have questions specific to your personal situation.  If you are planning on hiring an accountant to help you, make sure you choose someone familiar with the sharing economy to make sure you are making the most of your allowable deductions.  You can find some options in our Support Marketplace.

Have specific questions not answered here?  Ask us in the forum, and we’ll do our best to get you an answer.