Tax Rules for Your Shared Economy Clients

The continued growth in the sharing economy makes this a practice area that can’t be ignored. The “new economy” really means new ways of doing business that involve digital and borderless transactions. That is, a business likely connects with clients via an Internet connection organized by software or an “app.” The location of the customer may not be important, particularly if the “product” is digital or services that can be provided electronically (online).  

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Often, the costs to start generating revenues in the new economy are minimal. It might just involve signing up at a website as someone who can provide services (face-to-face or online) or offer to share (rent) property, such as a room in their home or their car. This part of the new economy is often referred to as the sharing economy or peer-to-peer networked economy where parties seeking to offer or use services or property are easily connected. Many aspects of the connection, such as payment and assessment, are completed on websites or apps that are simple to navigate.

Some of the companies creating shared economy opportunities have grown rapidly, such as Airbnb and Uber. There are in fact though, numerous “sharing economy” operations beyond these two. The low barriers to entry, and desire by many to generate income (or at least cash flow), makes it highly probable that at least one of your clients is generating income from sharing or freelancing.

It is also likely that your client needs assistance with the recordkeeping and income tax consequences of this cash-generating activity. Planning on how to optimize the treatment of deductions and any losses may also be needed. In addition, freelancing also leads to self-employment tax and perhaps local business license taxes. Home-sharing often also involves local transient occupancy tax (TOT), business license tax and perhaps other local taxes. Some short-term rentals may be subject to self-employment tax.

Learn more about shared economy tax rules with a 2-hour CPE course.

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