Thinking of Making Extra Money with Uber, Lyft or Airbnb? What You Should Know Before You Start
The “sharing economy” has become part of our daily lexicon in recent years, providing people with extra cash or eclipsing their jobs entirely. Are you thinking about driving for Lyft, Uber, Gett, and other ride-sharing apps? Or if you’ve got an extra bedroom and could use the cash, renting it out on Airbnb?
Here are some things that you should be aware of before you start on-boarding with these companies or preparing your home for paying guests.
1. Everything you do for the sharing economy is taxable income and you must pay self-employment tax.
In most cases, you will receive a 1099 form from the company you worked for if you earned more than $600 throughout the year. However, even if you earned less than $600 you will need to report your earnings on a Schedule C tax form if your profit was greater than $400. The only exception to this rule is if you live in a state or city where the sharing economy titans are required to declare you an employee by law.
2. There are some chief differences with Airbnb and other rental income compared to driving for Uber and so on.
You don’t have to pay self-employment tax as an Airbnb host and you are also not considered an employee of the company for being a host. Instead, you report your rental profit on Schedule E.
If you’re driving for Uber, delivering for Postmates, and other similar activities then you are earning “earned income” which can affect your eligibility for some tax credits. The same is true for being an Airbnb host, except that rental income is considered investment income even if you don’t own the property and are just subletting it. If you previously qualified for the Earned Income Tax Credit for instance, your Airbnb net income could nullify your eligibility for the credit.
3. You might not have to pay tax on your Airbnb income if you rented out your property for less than 14 days.
Whether you are renting out your entire home or just a room, there is an exemption in the tax code that applies to your primary personal residence (not to rental properties.) You will have to report, but not be taxed on, any rental income of your main home that is for less than 14 days. So, if you try out Airbnb for a few nights and decide it’s not for you, at least it’s tax-free.
4. Keeping track of your business percentages is of utmost importance.
How many miles have you put on your car, and how much were attributed to your Lyft and Uber driving? How much do you use your car overall for this activity? You need to keep good records to figure out your business percentage because that percentage applies to your expenses like maintenance, cleaning, gas, and registration and can be deducted. (However, amenities you purchase for passengers to get better tips and ratings are fully deductible.)
You must also keep track of how many days your home is being rented out on Airbnb and other short-term rental sites. You need to know this to determine your business use percentage no matter how much of your home is being rented out.
The sharing economy is still the Wild West as far as tax law is concerned, and Rue & Associates stays up to date so you don’t have to. Call us today to speak to one of our friendly and professional tax law experts for your Uber, Airbnb, and other sharing economy questions.