Today I came across an article about “share services” (Uber, Airbnb etc.) I had never even heard it called that. The article was questioning if these people knew the tax implications of being self-employed and even did a survey to find out how they handle their taxes. One of the comments was interesting – it asked “what’s the point of doing a survey when the same rules apply to anyone who is self-employed?” Well, the fact is they are not the same, and you have to factor in the issue of hobby loss regulations as well.
Any time you make money, it is going to be taxed. It doesn’t matter if you find $100.00 on the street, win $2,000.00 at the casino, or make under $5,000.00 renting out your house when you are not home. It is taxable. The real question is how it is taxed and how to make that tax the smallest amount possible.
Let’s start with Uber – you drive your own car, and act as a taxi to take people to their destination. Most do this as a second job to pay off debt or put themselves through school but there are those who go for it full time and make very good money at it. It doesn’t matter if you only drive on the weekends or not, you have money coming in, and therefore you’ll owe tax. Even worse, that income is also subject to self-employment taxes, because Uber does not withhold taxes for you. This turns the whole thing into a business and you’ll need to track your expenses as well as your income.
So other than tracking your mileage; which is something all businesses must do; what else is deductible? Part of your phone can be, if you purchase a separate GPS device, that could be. Even some of your meals while waiting outside the bar for your passenger could be deductible.
Now what about Airbnb – this one is a little different. If you rent out your home for less than 14 days it is not taxable income, but if you rent more than that you can take a portion of your house expenses (for example; utilities, trash service, and even new carpet). You cannot however, end up with a loss because you can only take the expenses up to the amount of the income. You can however end up with some being taxable because you can only take the expenses based on the number of days actually rented and the number of days you live in the house. Better yet, it is not subject to self-employment tax like it is with other businesses.
So it comes down to this – Uncle Sam is not going to give you anything. As a matter of fact, he wants you to give the government a portion of everything you get. Make sure you have a strategy in place so you can pay the lowest amount legally possible and still pay off that debt.