What is the sharing or gig economy I've heard about and how does it affect my taxes?

Many taxpayers use their phones and computers to provide services and sell goods. This includes the use of sites and apps to rent a home to travelers, sell crafts, or to provide car rides. Taxpayers who do this may be involved in the sharing economy. Participating in the sharing economy may affect a person’s taxes. These taxpayers can visit the Sharing Economy Tax Center on the IRS website to find resources that can help them meet their tax obligations.

Here are six things yoy should know about how the sharing economy might affect their taxes:

Taxes. Sharing economy activity is generally taxable. This includes:
  • Part-time work.
  • A side business.
  • Cash payments received.
  • Income stated on a Form 1099 or Form W-2. Important: Income is taxable whether or not a 1099 or W-2 is received.
Deductions. Some taxpayers can deduct their business expenses. For example, a taxpayer who uses a car for business use often qualifies to claim the standard mileage rate.

Rentals. Special rules apply to a taxpayer who rents out a home or apartment, but who also lives in it during the year. An IRS tool titled Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? walks a taxpayer through a series of questions to determine if their rental income is taxable.

Estimated Payments. Even if you also have a job and your employer withholds some tax, you may need to pay as you go, so you don’t owe. One way that you can cover the tax you owe is to make estimated tax payments during the year. These payments can help cover your tax obligation. You use Form 1040-ES to figure these payments.

Payment Options. The fastest and easiest way to make estimated tax payments is through IRS Direct Pay. You can also use the Treasury Department’s Electronic Federal Tax Payment System.

Withholding. Taxpayers involved in the sharing economy as an employee might want to review their withholding from that job and any other jobs they might have. They can often avoid making estimated tax payments by having more tax withheld from their regular paychecks. These taxpayers can file Form W-4 with their employer to request additional withholding. They can also use the Tax Withholding Estimator on IRS.gov. This tool helps determine if they are having too much or too little tax withheld from their income.

But wait there's more! Independent contractors in New Mexico are also subject to gross receipts tax.