By: Susan G. Corderman Clifford, CPA, Principal
If you skip choosing a designated driver and take an Uber or Lyft instead, if you bypass the hotel and opt for an Airbnb room, if you avoid the vacation rental property management company and book directly with an owner via VRBO, you are participating in what is known as the gig economy (also called the «on-demand», «sharing», or «access» economy). We use these services because they are convenient and oftentimes because they are less expensive than the conventional alternative. And for the users, there shouldn’t be any adverse tax consequences provided we obtain receipts for any properly deductible expenses. But for those who provide all these services, the Uber driver or the homeowner, for example, there are tax responsibilities.
In virtually all cases, income earned in the gig economy is taxable. While rental income is typically reported on schedule E, rental income received for property rented for less than thirty days and for which you provided personal services for the convenience of your tenant (such as a hotel), should be reported on schedule C. In either case, the costs incurred to earn that income are deductible. There are differences which you should discuss with your accountant, but a major one is that schedule C income is subject to self-employment tax. (Please note that if you rent your personal residence for fewer than 15 days, the income is tax-free). Self-employment tax as well as income tax is also owed if you provide personal services, such as driving for Uber or delivering for DoorDash. Of course, so long as you have receipts, a mileage log, and/or other documentation, you can deduct the portion of your actual car expenses related to your business use. Or you can use the standard mileage rate (58 cents per mile in 2019). And if you offer your riders bottles of water, packages of crackers, or pieces of candy, those expenses would be deductible as well.
Schedule C and Schedule E are basically just another name for an income statement. You need to know your revenue and your expenses so that you can produce an accurate income statement at year-end. You are also responsible for making estimated payments. Because you are not having withholding from a paycheck which is remitted by your employer to the IRS, it is your responsibility to remit what you owe for income and self-employment tax in quarterly payments. It is far easier to do this if you keep track of your income and your expenses throughout the year. You can do this by hand or by using a bookkeeping software package. Or you can hire a bookkeeper or bookkeeping service who will spend a few hours each month entering your deposits, checks, and credit card payments and reconciling your bank and credit card statements.
If you are working in the gig economy, you are running a business. You should follow good business practices which include having a separate business checking account and a credit card used only for the business. If you pay an independent contractor for services, obtain a form W-9 so that you can issue form 1099 at the end of the year. Keep receipts and invoice copies in case you are audited. And don’t use your business checks or credit card for personal expenses. Should you be audited, you don’t want to be explaining why some expenses but not others are personal.
Taxes aren’t your only concern, of course. Anyone providing lodging should make sure they are properly licensed by their city, town, or county and should collect and remit any lodging or similar tax. And you should notify your insurance company if you are renting out your home or using your personal car to drive for Uber or make deliveries. You may need increased, expanded, or special coverage.
If you work in the gig economy, you should expect to receive forms 1099-MISC or 1099-K (report of credit and debit card payments received), but you may not if you fall under the filing requirements ($600 for form 1099-MISC and fewer than 200 transactions and less than $20,000 in payments for form 1099-K). But even if you do not receive a form, your income is still reportable and taxable.