Tax issues await Uber drivers, Airbnb landlords, other gig-economy workers

Russ Wiles
The Republic |
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Now's a good time of year to access your financial situation, including investments, taxes and retirement accounts.

The gig or sharing economy is tempting more Americans to earn extra cash by offering rides, renting out rooms or providing other freelance help. It all sounds great, but there are some important tax issues to know.

The one simple rule is that the income derived from such jobs is nearly always taxable, even if you receive cash as payment or do part-time jobs for only a couple of hours a month. Matters get more complicated when you factor in deductible expenses, record-keeping requirements and estimated payments.

Understanding filing obligations

Public awareness of relevant tax issues appears to be lagging. In a survey last year of members of the National Association of the Self-Employed, slightly more than one in three respondents said they didn't know they needed to file quarterly estimated tax payments and didn't know what records they needed to keep. Four in 10 respondents weren't setting aside money for taxes.

"Many of the new service providers in a sharing economy may not fully comprehend their tax-filing obligations or have any experience with the requisite tax record-keeping," wrote Nina Olson, the National Taxpayer Advocate, in a report to Congress. Many of these people "will need to spend significant time learning about their tax-compliance obligations and devote many hours to record-keeping," she said.

READ MORE:Is the state Department of Revenue is holding your unclaimed cash?

A report this month from personal-finance website estimates that nearly 70 million Americans engage in gig or side jobs each year, earning $3,075 on average in supplemental income that they said they don't plan to report on their income-tax returns.

Other studies estimate somewhere around one-third and two-fifths of all workers are engaged in freelance or supplemental jobs, and the proportion appears to be increasing. Whether you provide rides, rent out rooms, run errands, make deliveries or do something else, here are some key tax tips to note:

Income: It's taxable

Income from gig-economy jobs is almost always taxable, unless specifically excluded. Such compensation includes not just wages and salaries but "bonuses, commissions, tips, fringe benefits, severance pay, rewards and other similar items, "notes a report by tax researcher Wolters Kluwer. Taxes could apply to compensation "in any form," including that received in cash, the company said.

According to Olson's report, 99 percent of wages subject to withholding in traditional employee/employer relationships gets reported to the Internal Revenue Service, but compliance drops for non-employee independent contractors.

Figure employment status

Tracking the expense side of the equation is more complicated, but first you need to determine if you're an employee or an independent contractor.

Usually, gig-economy workers are classified as independent contractors, noted Wolters Kluwer. That's because independent contractors control or direct the "means and methods of accomplishing the work," such as by owning the vehicle that provides ride-sharing services. Employees, by contrast, typically don't control what work will be done  and how it will be done. For more details, see IRS Publication 1779.

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If you are an independent contractor, nobody will withhold income or employment taxes on your behalf. Rather, you become responsible for these and other obligations, including self-employment taxes and estimated taxes, if applicable.

"It's up to you to take care of federal and state income taxes, as well as Social Security and Medicare," noted a blog post for independent contractors by TurboTax. "Combined, these taxes can easily reach 30 percent to 50 percent of your income, so make sure to set aside money to pay them."

Deductions available

The flip side is that independent contractors are allowed to deduct various expenses tied to their business activities. People who use their vehicles to provide rides can deduct a standard mileage rate (currently 53.5 cents a mile in 2017) or they can separately track and deduct relevant expenses. These include obvious outlays for gasoline, maintenance, insurance and the like, along with less-obvious expenses such as depreciation or lease payments, tolls and parking fees. 

"If you use your car for both ride-sharing and personal transportation, you can deduct only the portion of your expenses that apply to the business use," noted Turbo Tax, which urged independent contractors to keep thorough records or risk having them disallowed by the IRS.

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To the extent you use a mobile phone to find customers or otherwise perform the job, you may deduct these expenses, too. "For simplicity's sake, it may make sense to have a dedicated phone for work," said TurboTax.

Independent contractors report income and expenses on Schedule C and use Schedule SE for self-employment tax. Overall IRS audit rates have been in a long-term gradual decline, with fewer than 1 percent of personal returns now examined. But audit rates for Schedule C filers are higher, especially those with income above $25,000.

Home-use complexities

People who rent part or all of their homes, using airbnb or a similar service, can deduct various ongoing expenses such as property taxes, insurance, mortgage interest and maintenance. This, too, demands detailed record-keeping that can get complicated.

"Expenses must be allocated between rental and non-rental days and, if only a portion of the home is rented, between the rental and non-rental portions," Wolters Kluwer said.

All this is fairly similar to the deductions and record-keeping required of ride-sharing businesses. But with a home, matters get trickier because when the owner sells, these deductions become relevant in figuring possible capital gains.

That is, owners generally can exclude gains of up to $250,000 (if single) or $500,000 (if married) on a primary residence (subject to tests for ownership and personal-occupancy or "use"). But they can't exclude capital gains on the portion or time allocated for business.

In other words, the capital-gain exclusion wouldn't apply to the amount of time the home was used as a rental, or the portion of footage devoted to this purpose. Accounting firm Ernst & Young prepared a handy, 27-page report on this tax topic that can be found at

Reach the reporter at or 602-444-8616.

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