Sharing Means Declaring: Peer-to-Peer Deals and Your Taxes
For the past several years, the sharing economy has gained traction as more and more individuals rent out spare rooms to travelers, use their vehicles to earn extra income or opt to rent, rather than own, ball gowns they'll only wear once.
While the concept of shared consumerism can have environmental and financial benefits, the issue of taxes -- who pays, who owes and how they're declared -- has proved challenging to the companies at the heart of the sharing economy, and occasionally baffling to the people who use its services.
To get a sense of the nuances of participating in the sharing economy, look at Zipcar and Lyft. Zipcar, now owned by Avis (CAR), is the sharing-economy equivalent of renting a car, while Lyft, which often competes with Uber, is the equivalent of hiring a taxi. Both have different tax implications.
Whether you're offering a shared service or using one, the sharing economy may have a place on your tax return. The more you use these services, and the more you're trying to deduct or declare, the more you might have to ask whether you're comfortable self-filing, or whether it's time to call in an expert.
Dashboard Simplifies Tracking Expenses
Since a Zipcar membership covers the cost of insurance, parking, gas and maintenance, members who use Zipcar for business purposes may find itemizing their annual deductions more straightforward than renting or owning a car. Zipcar also provides a receipt after each rental period, an online dashboard to view all charges and an app, which makes tracking expenses for tax time a breeze.
"Zipcar membership and driving charges may be tax-deductible if used for business-related purposes," says David Piperno, Zipcar's vice president of finance. "Of course, we suggest checking with a certified accountant to see if your Zipcar expenses can qualify for a tax deduction." Unlike Zipcar, Lyft and Uber offer members the opportunity to earn income, as well as deduct expenses.
Lyft offers an online portal for its drivers (who are independent contractors, not company employees) that tracks how many rides they have given, what they have earned – including non-ride earnings such as bonuses – and the number of miles they have driven while giving lifts via Lyft.
"Drivers who give at least 200 rides and generate at least $20,000 in ride receipts in a year receive Form 1099-K," says Chelsea Wilson, public policy communications director for Lyft. "Drivers who earn at least $600 from bonuses, mentor training and reimbursements get Form 1099-Misc. Drivers who meet neither criteria get no tax form."
But as many 1099 consultants, self-employed folks and entrepreneurs know, not receiving a year-end tax form doesn't mean they can forget about declaring the income they earned. To ease the burden of tax time for its drivers, Lyft offers its drivers a free copy of a popular tax-preparation software. Riders who would ordinarily use taxis for business purposes, and deduct from their taxes accordingly, would be able to use Lyft much the same way.
Airbnb's Tax Issues
Another company often credited with popularizing the sharing economy is Airbnb, which allows apartment dwellers and homeowners to rent out all or some of their homes to travelers. The company has come under fire repeatedly over taxes, with cities such as San Francisco and New York claiming the company lets users set up illegal hotels and dodge the taxes that go along with it.
The company has been working on a city-by-city basis to resolve potential tax issues to maintain its relationships with cities and ease the burden on its local hosts. According to Airbnb's website, "Hosts are responsible for following all laws and regulations, including paying any local taxes that apply to their accommodations."
It seems straightforward. Hosts who earn income from their listings are required to report it, and they may also have to pay a hotel tax, depending on their jurisdiction. The company provides all of its hosts 1099 forms to properly declare their income from rentals, according to Christopher Nulty, a spokesman for Airbnb.
Renting from an Airbnb host for business? If it's a bona fide business expense that would be deducted on your taxes had the stay been in a hotel, for instance, staying in an Airbnb rental should also qualify. "Travel on Airbnb can be claimed as a business expense (if the trip otherwise qualifies for deductibility) -- in other words, there's nothing different about deciding whether travel is deductible business travel just because it's on Airbnb," McNulty says.
Declaring income from a rental through Airbnb or other home-sharing company could have implications on declaring a home office deduction. For instance, the spare room you told the Internal Revenue Service is used exclusively for work (a requirement of the home office deduction) shouldn't be one you're also using to gain income from travelers. That sort of double-dipping on your taxes isn't allowed.