There are many sources of income that must be included on your individual income tax return such as wages, interest, dividends, self-employment, rental income, pensions, IRA’s, etc. Some of the non-traditional income sources that the IRS is targeting includes income from the following: Lyft or Uber drivers, home rentals through Airbnb or VRBO, GoFundMe or Kickstarter campaigns, and virtual currency (or cryptocurrency) such as Bitcoin.
As a driver for Uber or Lyft you are considered an independent contractor and all income derived is reported on Schedule C, Profit or Loss From Business (Sole Proprietorship).
Drivers are described as self-employed “partners” and are subject to the Form 1099 tax rules. This includes a combination of the Form 1099-K, Payment Card and Third Party Network Transactions for payments processed through credit cards and Form 1099-MISC, Miscellaneous Income, for other payments received such as referral fees, bonuses, etc.
As an independent contractor, you are considered self-employed responsible for your own taxes with no benefits such as health insurance or vacations. You pay your own Social Security and Medicare Taxes (aka FICA taxes) on the net profit earned from your ridesharing business.
If your net earnings (gross income less associated business expenses) are greater than $400 you are required to file a tax return and report your self-employment activities.
Eligible expenses may include the following:
Home Rental Income
If you rent out your home for short-term rentals (less than 14 days per year) the income is not taxable regardless of how much you earn. Your rental income is tax-free if you rent out your home for 14 days or less, and the home is used personally for more than 14 days, or more than 10% of the total days it is rented out to others at a fair market rental price.
If you rent out your home for more than 14 days then you are subject to tax on income that exceeds your expenses. The rental income and expenses are reported on Schedule E, Supplemental Income and Loss (From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.)for each property that you list on the rental sites.
You can deduct 100% of any direct rental expenses, and a portion of the general or shared expenses. These are allocated based on the amount of time the property serves as a rental, compared to the total time it is used during the year for both personal and rental use.
EXAMPLE: Timothy lives in his Coronado condo for 300 days during the year and rents it out for 65 days. The property was used as a rental 18% of the time (65/365 = 18%). Paul can, therefore, deduct 18% of his general expenses up to the amount of the rental income earned during the year.
In some cases, renting out all or part of your house or apartment can be classified as the equivalent of running a bed and breakfast for tax purposes. If you dedicate a room or rooms for the use of paying customers and provide substantial services such as regular cleaning, changing linen or daily maid service. In this situation, your rental activity would be considered a business for tax purposes and reported on Schedule C, Profit or Loss from Business.
The treatment of funds that are received through sources such as GoFundMe or Kickstarter are determined on a case-by-case basis.
Generally, funds received through a GoFundMe account are considered a gift and as such not a tax deduction for the person making the payment and not income for the person receiving it. Those payments are generally defined as made out of a detached generosity with no expectation of ‘quid pro quo.”
Funds received through a Kickstarter campaign are generally includable in income unless they are classified as a loan that must be repaid or a capital contribution to an entity in exchange for an equity interest.
Virtual currency, the most popularly known is Bitcoin, are either ordinary income or a capital asset depending on the facts and circumstances.
EXAMPLE:Elaine’s business accepts payment in Bitcoin for consulting services. When Bitcoin has a value of $100, she charges $500 for her services and receives 5 Bitcoin. Several months later she purchases a $3,000 computer system from Dell for her business when Bitcoin has a value of $1,000 each. She uses 3 of her Bitcoins for the computer and has a short-term capital gain of $2,700 ($3,000 disposition price less $300 basis). She then uses the remaining 2 Bitcoin for a vacation rental and has a short-term gain of $1,800 ($2,000 disposition price less $200 basis). The Dell computer is a business asset which she can capitalize and depreciate, the vacation home is a personal expense. With this simple example, Elaine has ordinary income to her business of $500; $4,500 of short-term capital gain; a business asset worth $3,000 and personal expense of $2,000.
It is important that you accurately record your virtual currency transactions. For tax purposes we need to know when the virtual currencies were purchased, the value on the date of purchase, when the currencies were traded or used, and the value on the date of disposition. In addition, if you are involved in the global market and are trading in foreign currencies we will also need to determine the value of your transactions in U.S. dollars.
Contact our office if you have any questions regarding funds received and the potential tax liability.
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.