Kelly J. Bullis: How to figure tax on sharing related income
December 2, 2017
Aw, gee! The world is constantly changing! Isn't it comforting to know that there are still some things for certain that you can count on never changing? Death and taxes for example!
For those of us over 40, the only choice for getting somebody to drive you around for a fee, was a taxi. Oh boy, can I remember some of my favorite taxi rides. One time I was getting from the Boston airport to downtown Boston. The "driver" was a Russian immigrant who loved Gorbachev. While speeding along, he kept reading his copy of Pravda, turning around to explain to me in broken English the great things that were happening in Russia, and occasionally checking to see if we were still on the road. The guy was amazing! I have never seen so much talent. Of course, at the time, I was focused on preparing to die at any moment and only realized this taxi driver's talents about an hour after calming my nerves in the hotel bar.
Today, young folks just don't know how much they're missing out when they call Uber or use Airbnb. How boring!
Now if you are one of those folks renting out your car or your house through Uber, Airbnb, etc., there are tax consequences to be reckoned with. The IRS considers you a self-employed individual if what you do involves any labor on your part (like driving your car). That means you get taxed twice! First, Self-Employment Tax of 15.2 percent. Then again on your Federal Income Tax Return at whatever tax bracket you're in. Let's assume you are in the 25 percent tax bracket. That means your Uber fees collected are going to cost you over 40 percent in tax!
Now, don't panic yet. You do get to write off related expenses. The most obvious is your car. You could use the IRS mileage rate (currently $0.535 a mile), or you could deduct actual costs (gas, oil, maintenance, tires, registration, insurance, etc.). If you're driving folks around through Uber, you probably are not driving a junker that runs up a lot of maintenance costs, so for simplicity, it might be best to just take the mileage. In either case, you need to keep a good log of all miles driven in your car while being an Uber driver. You could also write off your entire cell phone costs, too.
For Airbnb, you are normally not considered self-employed like Uber drivers. So, your tax rate is most likely only your federal tax bracket. (If you provide services such as washing your guest's clothes, fixing them breakfast, etc., this might move your Airbnb activities onto the Self-Employed category, and then you do end up paying that 15.2 percent Self-Employment Tax as well.) No matter what, you can write off a pro-rated portion of you house costs (taxes, insurance, mortgage interest, utilities, repairs, and depreciation). You can also write off your cell phone and any other costs you incur such as cleaning supplies, food, etc.
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If you are given any tips, those are just considered additional gross income to report.
Did you hear? Proverbs 22:29 says, "Do you see a man who excels in his work? He will stand before kings …"
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. He's on the web at BullisAndCo.com and on Facebook.