Resources/ Updates

May02

Tax Considerations for Small Business in the Sharing Economy

Small businesses offering goods and services through an online platform may be part of the sharing economy.  The IRS typically considers ride sharing, freelancing, renting a spare bedroom, and crowd funding as taxable.

Consider these five sharing economy tips from the IRS for small businesses:

  1. “Taxes. Sharing economy activity is generally taxable. Payments received in the form of money, goods, property or services may require filing a tax return to report that income to the IRS.Tips. People often conduct sharing-economy activities electronically but tips in cash are still a common occurrence. Tips are generally subject to withholding. Small businesses or self-employed persons should report tips they receive as income on Schedule C or C-EZ. See Publication 334, Tax Guide for Small Business, for more details.
  2. Large Cash Amounts. Any person in a trade or business who receives more than $10,000 in cash in a single transaction or in related transactions must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, within 15 days after receiving payment.
  3. Deductions. Expenses to carry on a trade or business are usually deductible. Examples include claiming the 54 cents per mile rate for 2016 when using a car for a ride-sharing business. Or deducting the commission/fee charged by a freelancer marketplace service.
  4. Estimated Payments. Small businesses in the sharing economy often need to make quarterly estimated tax payments to cover their tax obligation. Form 1040-ES, Estimated Tax for Individuals, will help to figure these payments. IRS Direct Pay is the fastest and easiest way to make these payments. The Treasury Department’s (EFTPS) system is also an option.
  5. Records. Good records assist in monitoring a business’s progress, tracking deductible expenses and can substantiate items reported on tax returns. A good recordkeeping system includes a summary of all business transactions. Generally, it is best to record transactions on a daily basis.”

Related Resources

IRS Sharing Economy Tax Center

IRS Tax Tip to Consider for Cash Intensive Small Businesses in the Sharing Economy ~ May 2, 2017

Other Small Business Tax Tips

Hobby or Business? IRS Offers Tips to Decide 

Small Business Week Tax Tip 2017-04, May 3, 2017

Tax Tips to Consider for Cash Intensive Small Businesses in the Sharing Economy
Small Business Week Tax Tip 2017-03, May 2, 2017

Employee or Independent Contractor? Know the Rules
Small Business Week Tax Tip 2017-02, May 1, 2017

IRS Promotes Specialized Online Services during Small Business Week
Small Business Week Tax Tip 2017-01, April 28, 2017

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