From renting spare rooms and vacation homes to car rides or using a bike…name a service and it’s probably available through the sharing economy. Taxpayers who participate in the sharing economy can find helpful resources in the IRS Sharing Economy Tax Center on IRS.gov. It helps taxpayers understand how this activity affects their taxes. It also gives these taxpayers information to help them meet their tax obligations.
Here are six things taxpayers should know about how the sharing economy might affect their taxes:
1. The activity is taxable.
Sharing economy activity is generally taxable. It is taxable even when:
- The activity is only part time
- The activity is something the taxpayer does on the side
- Payments are in cash
- The taxpayer receives an information return – like a Form 1099 or Form W2
2. Some expenses are deductible.
Taxpayers who participate in the sharing economy may be able to deduct certain expenses. For example, a taxpayer who uses their car for business may qualify to claim the standard mileage rate, which is 58 cents per mile for 2019.
3. There are special rules for rentals.
If a taxpayer rents out their home or apartment, but also lives in it during the year, special rules generally apply to their taxes. Taxpayers can use the Interactive Tax Assistant tool, Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? to determine if their residential rental income is taxable.
4. Participants may need to make estimated tax payments.
The U.S. tax system is pay-as-you-go. This means that taxpayers involved in the sharing economy often need to make estimated tax payments during the year. These payments are due on April 15, June 15, Sept. 15 and Jan. 15. Taxpayers use Form 1040-ES to figure these payments.
5. There are different ways to pay.
The fastest and easiest way to make estimated tax payments is through IRS Direct Pay. Alternatively, taxpayers can use the Electronic Federal Tax Payment System.
6. Taxpayers should check their withholding.
Taxpayers involved in the sharing economy who are employees at another job can often avoid making estimated tax payments by having more tax withheld from their paychecks. These taxpayers can use the Withholding Calculator on IRS.gov to determine how much tax their employer should withhold. After determining the amount of their withholding, the taxpayer will file Form W-4with their employer to request the additional withholding.
Now that the April tax-filing deadline has come and gone, many taxpayers are eager to get details about their tax refunds. When it comes to refunds, there are several common myths going around social media.
Here are five of these common myths:
Myth 1: Getting a refund this year means there’s no need to adjust withholding for 2019
To help avoid an unexpected tax outcome next year, taxpayers should make changes now to prepare for next year. One way for a taxpayer to do this is to adjust their tax withholding with their employer. The IRS encourages people to do a Paycheck Checkup using the IRS Withholding Calculator to determine whether their employer is withholding the right amount. This is especially important for anyone who got an unexpected result from filing their tax return this year. This could have happened because the taxpayer’s employer withheld too much or too little tax from the employee’s paycheck in 2018.
Myth 2: Calling the IRS or a tax professional will provide a better refund date
Many people mistakenly think that talking to the IRS or calling their tax professional is the best way to find out when they will get their refund. In reality, the best way to check the status of a refund is online through the “Where’s My Refund?” tool at IRS.gov or with the IRS2Go mobile app. Taxpayers without Internet access can call the automated refund hotline at 800-829-1954. “Where’s My Refund?” has the same information available to IRS telephone assistors, so there is no need to call unless “Where’s My Refund?” says to do so.
Myth 3: Ordering a tax transcript is a ‘secret way’ to get a refund date
Doing so will not help taxpayers find out when they will get their refund. “Where’s My Refund?” tells the taxpayer their tax return has been received and if the IRS has approved or sent the refund.
Myth 4: ‘Where’s My Refund?’ must be wrong because there’s no deposit date yet
Updates to “Where’s My Refund?” on both IRS.gov and the IRS2Go mobile app are made once each day. These updates are usually made overnight. Even though the IRS issues most refunds in less than 21 days, it’s possible a refund may take longer. This means that in some cases, a taxpayer who filed later may receive their refund sooner than someone who filed earlier in the season. The IRS contacts a taxpayer by mail when it needs more information to process their tax return. Taxpayers should also remember to consider the time it takes for the banks to post the refund to the taxpayer’s account. Taxpayers waiting for a refund in the mail should plan for the time it takes a check to arrive.
Myth 5: ‘Where’s My Refund?’ must be wrong because a refund amount is less than expected
There are several factors that could cause a tax refund to be larger or smaller than expected. Situations that could decrease a refund include:
- The taxpayer made math errors or mistakes
- The taxpayer owes federal taxes for a prior year
- The taxpayer owes state taxes, child support, student loans or other delinquent federal nontax obligations
- The IRS holds a portion of the refund while it reviews an item claimed on the return
The IRS will mail the taxpayer a letter of explanation if these adjustments are made. Some taxpayers may also receive a letter from the Department of Treasury’s Bureau of the Fiscal Service if their refund was reduced to offset certain financial obligations.
The Internal Revenue Service issued guidance (PDF) providing additional details about investment in qualified opportunity zones.
The proposed regulations allow the deferral of all or part of a gain that is invested into a Qualified Opportunity Fund (QO Fund) that would otherwise be includible in income. The gain is deferred until the investment is sold or exchanged or Dec. 31, 2026, whichever is earlier. If the investment is held for at least 10 years, investors may be able to permanently exclude gain from the sale or exchange of an investment in a QO Fund.
Qualified opportunity zone business property is tangible property used in a trade or business of the QO Fund if the property was purchased after Dec. 31, 2017. The guidance permits tangible property acquired after Dec. 31, 2017, under a market rate lease to qualify as “qualified opportunity zone business property” if during substantially all of the holding period of the property, substantially all of the use of the property was in a qualified opportunity zone.
A key part of the newly released guidance clarifies the “substantially all” requirements for the holding period and use of the tangible business property:
- For use of the property, at least 70 percent of the property must be used in a qualified opportunity zone.
- For the holding period of the property, tangible property must be qualified opportunity zone business property for at least 90 percent of the QO Fund’s or qualified opportunity zone business’s holding period.
- The partnership or corporation must be a qualified opportunity zone business for at least 90 percent of the QO Fund’s holding period.
The guidance notes there are situations where deferred gains may become taxable if an investor transfers their interest in a QO Fund. For example, if the transfer is done by gift the deferred gain may become taxable. However, inheritance by a surviving spouse is not a taxable transfer, nor is a transfer, upon death, of an ownership interest in a QO Fund to an estate or a revocable trust that becomes irrevocable upon death.
The guidance (PDF) is posted on IRS.gov. These regulations relate to the Tax Cuts and Jobs Act (TCJA), the tax reform legislation enacted in December 2017.
A few taxpayers still use the old-school method of filing their tax returns: on paper. For these people, now is the time to consider filing electronically. With the April tax deadline right around the corner, it’s the perfect time to use IRS e-File.
Here are the top six reasons why taxpayers should file electronically in 2019:
It’s accurate and easy. E-File helps taxpayers avoid mistakes, such as a transposed Social Security number. Taxpayers who e-File receive an acknowledgement from the IRS within minutes, telling them their return has been accepted. If a return is rejected, the acknowledgement will detail why the IRS rejected the tax return.
E-file meets strict security guidelines. It uses modern encryption technology to protect tax returns. The IRS continues to work with states and tax industry leaders to protect tax returns from tax-related identity theft. This effort has helped put strong safeguards in place to make electronic tax filing a safe and secure option.
Taxpayers can buy commercial tax software to e-File right from their home computer. They can also ask their tax preparer to e-file their tax return.
It means faster refunds. When taxpayers e-File and use direct deposit for their refund, they can get their money in less than 21 days in most cases. On the other hand, if they mail a paper tax return to the IRS and request a refund check in the mail, it can take up to six weeks. Also, since e-Filed returns are generally more accurate, there probably won’t be additional delays. They delays can be caused when the IRS finds mistakes that must be fixed before the IRS can send a refund.
It’s often free. Most taxpayers can e-file for free through IRS Free File. Free File is only available on IRS.gov. Some taxpayers may also qualify to have their taxes e-filed for free through IRS volunteer programs. Volunteer Income Tax Assistance offers free tax preparation to people who generally earned $55,000 or less. Tax Counseling for the Elderly generally helps people who are age 60 or older.
It can be used whether a taxpayer is getting a refund or needs to make a payment. Taxpayers who owe taxes can e-File early and set up an automatic payment on any day until the April deadline. They can pay electronically from their bank account with IRS Direct Pay. Taxpayers can visit IRS.gov for information on other payment options.