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 (e.g. Airbnb or VRBO), sell crafts (e.g. Etsy or eBay or in person), or to provide car rides (e.g. Uber or Lyft). If you do this you may be involved in the sharing economy. Participating in the sharing economy may affect your taxes. You can visit the Gig Economy Tax Center on the IRS website to find resources that can help you meet your tax obligations.
Here are six things you should know about how the sharing economy might affect your taxes:
Taxes - Income from sharing economy activity is generally taxable. This includes:
Part-time, temporary or side work.
Cash payments received.
Income stated on a Form 1099 or Form W-2.
Not reported on a Form 1099-K, 1099-NEC, 1099-MISC, W-2, or other information return.
Paid in the form of cash, property, goods, or virtual currency
Deductions - Gig workers can deduct their business expenses such as the use a vehicle phone, computer to provide services, sell goods, rent a home to travelers, sell crafts, or to provide car rides.
Rentals - Special rules apply if you rent out a home or apartment and also live in it during the year. The IRS has tool here that walks you through a series of questions to determine if rental income is taxable.
Estimated tax 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 - If you are involved in the sharing economy as an employee you might also want to review your withholding from that job and any other jobs you might have. You may be able to avoid making estimated tax payments by having more tax withheld from their regular paychecks. To make the adjustment file Form W-4 with your employer. You can also use the Tax Withholding Estimator on IRS.gov. This tool helps determine if you are having too much or too little tax withheld from your income.
Important: Independent contractors and participants in the sharing economy who are doing business in New Mexico are also subject to gross receipts tax.