Prepared by Susan Clifford, CPA – Principal
As 2018 draws to a close and the 2019 tax filing season approaches, there is a lot of talk about the new tax regulations (officially called the Tax Cuts and Jobs Act). If you are working in the shared economy (also called the «on-demand», «gig», or «access economy»), whether part-time to supplement your wages or other sources of income or full-time, as an alternative to a more traditional job as an employee, the new tax act affects you, too. These include, but are certainly not limited to, Uber and Lyft drivers, artists, musicians, dog walkers, sales representatives, and those who rent out a house or a room. Below are ten things to consider (some new and some unchanged from past tax years) as we approach year-end to better prepare yourself to file your 2018 tax return.
All income, whether reported to you on a 1099-MISC or a 1099-K or not, is reportable and taxable.
All expenses should be supported with receipts or contemporaneous mileage logs. There are several apps available to help you track your mileage and others to help you organize and track your receipts.
The new tax act increased the allowance for bonus depreciation to 100% for tangible property and computer software acquired during 2018. Section 179 expensing is also available and has been expanded to include assets used in lodging and to certain qualified improvements to non-residential real property. Your tax advisor can help you determine if any of these apply to you.
You are still required to either have health insurance or make the shared responsibility payment. In 2018, the payment is the greater of $695 per adult or 2.5 percent of household income. The same exemptions continue to apply.
Net income reported on Schedule C (or Schedule F if you are farming) is subject to self-employment tax which is 15.3% of your net self-employment income.
While you do not have withholding on your Schedule C, E, or F earnings, you are still responsible for making regular payments of your 2018 tax. To avoid paying an underpayment penalty for 2018, you need to pay in, via withholding and/or estimated payments, 100% of your 2017 tax (110% for high income tax payers). If your shared economy earnings supplement your wages and the tax on them isn’t too much, it is easiest to just increase your withholding to cover your taxes (income and self-employment) on those earnings. The biggest advantage is that withholding is considered to have been done ratably throughout the year, even if you actually backload it into the last couple of months. If you have to make estimated payments, they were due April 15th, June 15th, and September 15th. The fourth one will be due January 15th, so you can pay any shortfall then. And while last year’s tax is the safe harbor amount to avoid underpayment penalties, if your income is higher in 2018, you will have a balance due in April. You should figure your approximate taxes (income tax percentage based on your taxable income plus 6% for Georgia or South Carolina plus 15.3% for self-employment tax) and set it aside, perhaps in a separate savings account, to make sure you have it when your quarterly estimates or a balance are due.
Schedule C or F income is earned income that enables you to fund an IRA or other retirement account or to take a credit for dependent care expenses if you are single or if you spouse also works. It is also used in determining whether or not you are eligible for the Earned Income Credit.
Rental income is NOT earned income so cannot be used to qualify you for an IRA or retirement contribution, a dependent care credit, or the Earned Income Credit. You do not pay self-employment tax on rental income.
The big news about which you have likely heard talk, is that, under the new tax act, 20% of the income from Schedules C, E, and F can be deducted from your taxable income if you meet the requirements. If your taxable income from all sources (not just your business income) is less than $157,700 if single or $315,000 if married filing jointly, you are eligible for the deduction. The deduction is the lesser of 20% of your qualified business income or 20% of your taxable income excluding any capital gains or qualified dividends. If your taxable income is greater than that, there additional rules and exceptions so you should consider consulting a tax advisor to see if you qualify or if there is anything you can do to become qualified.
There are special rules under section 199(A) if you rent your property to a business you own. Again, you should consult a tax advisor to see whether you these rules apply to you.