Sharing Economy Tax Checklist

Written by Annette Nellen | Posted in Tax 2016 • Tax Tips

In September, the IRS created a Sharing Economy Tax Center with links to tax information to help freelancers and those renting property. This center offers general information primarily to help individuals understand related tax matters. But it’s not enough for practitioners, as it doesn’t cover all possible tax issues (such as state and local ones) or provide links to relevant law provisions.

Hopefully some help, I’ve got a checklist for tax practitioners.

CLIENT CHECKLIST

Do you engage in any of these online/Internet activities?
Selling goods or services
Buying goods online (use tax may be owed)
Online games or gambling
Receive advertising revenue connected with your website or blog
Lend or borrow money
Create a crowdfunding site for yourself or someone else (possible reporting or gift tax consideration)
Obtain funds from a third-party crowdfunding site
Rent out your property through a web platform
Find customers/work through a web platform
Own and use virtual currency (see Notice 2014-21 and 6/10/16 AICPA comment letter)
Engage in any other online/web-based activity that generated cash or revenue
Own digital assets (such as photos, financial records) and use cloud services (help client with data security and whether assets need to be identified in estate documents)

Tax Considerations

Here are some of the key tax issues related to common sharing activities.

Rental of room in home

Separate personal and rental expenses.
Identify and apply the appropriate income/loss determination rule – §§162, 280A, or 469 (the answer can change from year to year).
Determine local tax obligations, such as transient occupancy tax and business license tax.

Ride sharing (Uber, Lyft, etc.)

Determine whether activity is a business or hobby (see Reg. §1.183-2). Some individuals engage in this activity part-time and only to generate cash rather than a profit.
Is the worker (freelancer) optimizing tax benefits, such as retirement plans?
Review IRS Audit Technique Guide for the cash intensive businesses, Chapter 17 on taxicabs.

Any sharing activity that generates cash (e.g, renting your personal auto)

Be sure client has appropriate recordkeeping in place to identify income and expenses and to separate them from personal activities.
Various apps exist to help with recordkeeping including ones using GPS to track personal versus business miles.
Ask client if they received any 1099-MISC or 1099-K from the activity. If yes, help them reconcile it to actual receipts for the year.
All clients should be asked whether they generate funds from any type of web-based activity because many will not receive a 1099. For example, network platform companies are only required to issue a 1099-K if more than $20,000 was processed and more than 200 transactions (see PLR 201604003 (1/22/16).

Annette Nellen

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.