In a world where Airbnb is the new way to vacation and Uber is how people get from Point A to Point B, the sharing economy is here and it’s a hot topic – so hot that even the IRS is talking about it. The agency recently launched a new web resource to help taxpayers who are involved in the sharing economy to meet their US income tax obligations – here are a few things to know about how this may help US expats!
The Sharing Economy
Over the past few years, we’ve seen an increase in ‘regular Joes’ offering services typically held by big businesses. One of the originals, Airbnb, allows anyone to open up their home to strangers anywhere in the world looking for a place to lay their head at night while traveling. A role traditionally held by hotels, Airbnb has reinvented hospitality – and a host’s tax situation! Non-traditional economic activities may mean non-traditional tax requirements, and since this is such a new avenue for many, having a go-to resource is essential.
For US expats, having a non-traditional career or way of earning an income isn’t unusual. In fact, many expats are probably familiar with the sharing economy to some degree, whether they are offering services or utilizing services provided by someone else. From travel to transportation, technology and more, it’s extremely common – and useful – to take part in the sharing economy while living abroad as US expats. Check out our tax guide for Americans working overseas for tax tips and money-saving ideas.
Things to Consider
If you are providing goods or assets via the sharing economy, you should be aware of your tax reporting requirements – such as self-employment taxes or reporting rental income. Because this is such a relevant topic, it’s become a focal point for tax professionals. There are certain factors you’ll want to be sure you think about if you’re a participant in these economic activities:
- US Taxes: In general, income you receive is taxable – even if you do not receive a Form 1099, W-2 or other form of income statement. This is true if your sharing economy activity is part-time or a side business, no matter the method of payment. It’s important to note, though, that some business expenses may be deductible.
- Deductions: Depending on the type of service or assets you’re providing, you may be able to deduct some or all business expenses. For example, if you’re ‘Ubering’ (aka, providing your vehicle and driving services to others), you will likely be able to claim the standard mileage rate of 54 cents per mile.
- Rentals: There are specific rules that apply to the rental of a dwelling that is occupied by the taxpayer during the tax year. Typically, rental income must be reported fully, expenses must be divided between personal and business purposes and special deductions will apply. However, if the dwelling is rented out less than 15 days of the year, the rental income isn’t reportable and expenses are not deductible.
- Estimated Payments: With a pay-as-you-go tax system, the US requires estimated tax payments to be made during the year to cover tax obligations if you’re involved in the sharing economy. You’ll determine these payment amounts using Form 1040-ES, and the quarterly payments are due on April 15, June 15, September 15 and January 15.
- Making Payments: The easiest method for making your estimated payments is using the IRS’ Direct Pay or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS) – both are easily accessible via the Internet.
- Tax Withholding: If your involvement in the sharing economy is a side venture and you have another job, you may be able to avoid making estimated tax payments by having more withheld from your paychecks at your job. You can do this by filing Form W-4 to request additional withholding.
If you participate in the sharing economy by offering services or assets, understanding how your US taxes will be affected is very important. Check out the IRS’ Sharing Economy Resource Center for details that will help you with your tax situation. Working with a tax professional is also a great way to ensure you’re taking the correct steps to filing your US taxes each year!
Ready to Get Started on Your US Expat Taxes?
Greenback can help. Our team of dedicated CPAs and IRS Enrolled Agents are here to help US expats navigate the often-confusing world of US expat taxes for a more hassle-free process – get started with us today!