Gig-econ­omy work­ers of­ten are un­aware of tax li­a­bil­i­ties

USA TODAY US Edition - - MONEY - Russ Wiles

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 be­ware.

The one sim­ple rule here is that the in­come de­rived from such jobs is nearly al­ways tax­able. Things get more com­pli­cated when you fac­tor in de­ductible ex­penses, record-keep­ing re­quire­ments and es­ti­mated pay­ments.

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 weren’t set­ting aside money for taxes.

“Many of the new ser­vice providers in a shar­ing econ­omy may not fully com­pre­hend their tax­fil­ing obli­ga­tions or have any ex­pe­ri­ence with the req­ui­site tax record-keep­ing,” Nina Ol­son, the Na­tional Tax­payer Ad­vo­cate, wrote 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.

Here are 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,” a re­port by tax re­searcher Wolters Kluwer notes. Taxes could ap­ply to com­pen­sa­tion “in any form,” in­clud­ing that re­ceived in cash, the com­pany said. Ac­cord­ing to Ol­son’s re­port, 99% of wages sub­ject to with­hold­ing in tra­di­tional em­ployee/ em­ployer re­la­tion­ships gets re­ported to the IRS, 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, Wolters Kluwer noted. That’s be­cause in­de­pen­dent con­trac­tors con­trol or di­rect the “means and meth­ods of ac­com- plish­ing 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.)

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.

DE­DUC­TIONS AVAIL­ABLE

The flip side is 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 or they can sep­a­rately track and deduct rel­e­vant ex­penses. These in­clude out­lays for gas, 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,” Turbo Tax noted.

To the ex­tent you use a mo­bile phone to find cus­tomers or oth­er­wise per­form the job, you may deduct these ex­penses, too.

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, things 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 per­son­aloc­cu­pancy or “use”). But they can’t ex­clude cap­i­tal gains on the por­tion or time al­lo­cated for busi­ness.

In other words, the cap­i­tal­gain 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.

Taxes could ap­ply to com­pen­sa­tion “in any form,” in­clud­ing that re­ceived in cash, tax re­searcher Wolters Kluwer notes.

Reach Wiles at russ.wiles@ ari­zonare­pub­lic.com or 602-444-8616.

AP

Whether you pro­vide rides, rent out rooms, run er­rands, make de­liv­er­ies or do some­thing else, it’s al­most al­ways tax­able.

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