You may or may not be familiar with the term “sharing economy”. This primarily relates to sharing your personal assets (like your house or car) for compensation. If you’ve ever thought about renting out your house on Air B&B or driving for Uber or Lyft you would be part of the sharing economy. What you may not realize is that income from these types of activities is subject to taxes, additional laws, and reporting requirements.
- Self-Employment Tax - If you have income where you are performing a service, like driving someone around, you would also be subject to this tax. The self-employment tax is 15% of the net income from the service you are performing although you can usually deduct a portion as an adjustment to gross income on your tax return.
- Sales Tax – In New Hampshire, if you are renting a property you are required to withhold and remit a 9% Meals and Rooms tax on the amount you charge to those who rent your property. Other states have similar sales tax requirements.
You also need to familiarize yourself with state and local laws. Some towns have restrictions on short-term rentals so even if you want to rent your property you may not be legally allowed. For example, Portsmouth, NH does not allow short-term rentals in residential areas of the city.
This is just a start on the many things you will need to consider. If you have questions, contact your account, or you can check out the Sharing Economy Tax Center page on the IRS website.
The IRS also comes out with regular Tax Tips, many of which are focused on the Sharing Economy. Their April 23rd tax tip covered six things you should know about the sharing economy and their May 7th tax tip described record keeping requirements for small business owners. There are many other useful tips for taxpayers participating in the sharing economy.