If you use one of the many online platforms available to rent out a third bedroom or the whole house for a short term, provide car rides, or connect with customers to provide other goods or services, you're involved in what is sometimes called the gig economy. Gig work is certain activity you do to earn income, often through an app or website (digital platform), like:
Drive a car for booked rides or deliveries (Turo, Lift, Uber, etc.)
Rent out property or part of it (Airbnb or VRBO)
Run errands or complete tasks
Sell goods online (Amazon, eBay, Etsy, Shopify, etc.)
Provide creative or professional services
Provide other temporary, on-demand or freelance work, etc.
Just like any other job, money earned through the gig economy is taxable. You must report the income earned from the gig economy on a tax return, even if it's just a part time, temporary, or side work. Income's taxable even if it's paid in cash, property, or virtual currency. If you do gig work as an employee, your employer should withhold tax from your paycheck. If you do gig work as an independent contractor, you may have to pay estimated taxes.
Business expenses. If you're an employee, you cannot deduct your business expenses. If you're self-employed, you may be able to deduct certain business expenses. For example, if you're in the rideshare business, you might be able to deduct expenses for supplies, cell phones, auto expenses, food and drinks for passengers, car washes, parking fees, tolls, roadside assistance plans, taxes, and incentives associated with certain electric in the hybrid vehicle. However, you need to be sure and keep good records separating the cost for those items that you use for business and those that are used personally, because generally you cannot deduct personal living or family expenses. It's really important to keep good records. Generally, you required to keep your records for three years from the time you filed your return. However, in certain situations, you may be required to keep your business and tax records longer than three years.
If you received rental income for the use of a house or your apartment or your vacation home, you must usually report it on your tax return. You can deduct certain expenses, but special rules and limits often apply. These deductible expenses reduce the amount of rental income subject to tax, and these expenses could include mortgage interest, real estate taxes, casualty losses, maintenance, utilities, insurance and depreciation. The kinds of property you can depreciate include machinery, equipment, buildings, vehicles, and furniture. If you use property, for example, a car for both business and personal purposes, you can depreciate only the business use of that asset. You can depreciate property that meets all the requirements set by the IRS.
If you use the dwelling unit for both rental and personal purposes, you generally must divide your total expenses between the rental use and the personal use, based on the number of days used for each purpose. And you won't be able to deduct your rental expenses in excess of the gross rental income limitation.
When you rent your personal residence for fewer than 15 days, you don't report any of the rental income and you don't deduct any other rental expenses.
Call us for consult to see how you can minimize your tax liability as a gig economy business owner.
Best of luck!