The sharing economy is not a new concept. People have always rented out spare rooms, loaned their cars to other people and engaged in other types of "sharing" in exchange for money.
Improved technology, though, provides platforms for consumers to loan money, borrow goods, provide services and make exchanges with more convenience. This market allows individuals to gain revenue from assets they own. Sometimes these arrangements are paid for "in kind." An example of this would be bartering. However, most often these items are paid for in cash.
So How Does This Affect Taxes?
Traditionally, transactions in the sharing economy have not been taxed in the same way as the traditional business economy. As government regulation catches up with this trend, however, we can anticipate changes and stronger regulations.
There are several probable taxing actions that could affect those doing business in the sharing economy.
- Direct taxes, e.g., income taxes
- Indirect taxes, e.g., sales and use taxes
- Informational reporting requirements
Also, there will likely be requirements for state and local regulations, such as licensing and insurance.
Renting, Bartering And Donating
To understand how taxes might look for those in the sharing economy, let's look at three similar models that are currently covered under modern tax codes:
- Taxes on sales or rentals
- Bartering transactions
- Taxes related to donations and some crowdfunding transactions
According to the IRS, income from sales and rentals are taxed just like traditional income. This can be reported on Schedule C of an individual's tax form, without itemizing, or filed as a separate business entity and taxed quarterly. Strong bookkeeping is important, as profits can be offset by expenses. There is also special consideration given to selling things you already own (personal property), versus things that you may purchase for the purpose of selling.
Currently, bartering is not required to be taxed unless one party receives more value "in kind" than what they traded. For example, if you trade a motorcycle worth $500 for a boat worth $1000, you would be expected to report the $500 difference as income from a bartering transaction. Again proper accounting methods are important, as documented business expenses can decrease your taxable portion of income.
There is no tax burden on donations. If you donate to a charity or recognized non-profit and do not receive anything in return for that donation, it can be a tax deduction for your itemized return. However, if you receive a product or service for your donation, you generally cannot take a deduction.
Crowdfunding Is Trickier
According to an article in the Huffington Post, crowdfunding presents a unique situation, since the models vary significantly. Unless it is a recognized non-profit or charity, you cannot take a deduction for the contribution. Furthermore, if you receive benefits or more value than those you contributed, it should be treated as income and reported as such.
If you are the individual receiving crowdfunding proceeds, this can become quite complex, and advice from a tax professional or law firm is strongly advised. In fact, if you have any questions or concerns about tax-related legal matters, don't hesitate to talk with a lawyer who can fully explain your legal rights and options.