Airbnb and Uber Income can cause Tax Havoc

As you know, the so-called sharing economy uses the Internet and other technology advances to facilitate a variety of transactions, such as car sharing (e.g., Uber and Lyft), vacation property rentals (e.g., Airbnb), apartment rentals, freelance work, and crowdfunding. Since the sharing economy is now a big deal, the tax issues have become a big deal too. However, indications are that sharing economy participants need help with those tax issues. According to a recent survey, 34% of those who reported earning income in the sharing economy did not know they needed to make quarterly estimated tax payments, 36% did not understand what records they should keep for tax purposes, 43% percent did not set aside money to meet their tax obligations or know how much they owed, and 69% did not receive any tax information from the sharing economy platform they used to earn their income.

Income and Deductions

If you receive income from a sharing economy activity, it is generally taxable—even if the activity is a sideline and even if you are paid in cash and do not receive a Form 1099-MISC (Miscellaneous Income), 1099-K (Payment Card and Third Party Network Transactions), W-2 (Wage and Tax Statement), or other information return that reports income to you and to the IRS. Those with positive taxable income from sharing economy activities may also face state and local income taxes. On a positive note, some or all of your sharing economy-related expenses may be deductible as business expenses.

Home Sharing

Special tax rules apply if you rent a property that you also use as a residence during the year. Rental income must usually be reported in full. Most expenses must be divided between personal and rental usage, and deduction limits may apply. Also, those who rent out their properties may owe state and local occupancy taxes, room taxes, or hotel taxes.

Estimated Tax Payments

If you have profits from the sharing economy, you may need to make quarterly estimated tax payments to cover the additional taxable income and related self-employment tax. Estimated tax payments for the 2017 tax year are due on 4/18/17, 6/15/17, 9/15/17, and 1/15/18.

Tax Penalties

Those who participate in the sharing economy and fail to meet their federal tax filing and payment obligations can face a host of potentially expensive penalties, such as the penalty for failure to make adequate estimated tax payments, the late payment penalty, the failure-to-file penalty, accuracy-related penalties for faulty tax return filings, and more.

Business Entity Considerations

When a sharing economy activity becomes significant, you may want to establish a liability-limiting entity to operate the activity. Different entities have different tax implications.

Conclusion

We can assist you with all these sharing-economy related tax issues. Please contact us if you have questions or want more information. We are here to help.

Grab the Solar and Car Credits before they are Gone!

Some “green energy” tax breaks for individual taxpayers expired at the end of 2016, while others are still on the table for 2017 and beyond.

Residential Solar Energy Credit

You can still claim a federal income tax credit equal to 30% of expenditures to buy and install qualifying energy-saving solar equipment for your home. Since this gear is expensive, it can generate big credits. There are no income limits. The 30% credit is available through 2019. In 2020, the credit rate drops to 26% and then to 22% in 2021. After that, the credit is scheduled to expire. The credit can be used to reduce your regular federal income tax bill and any Alternative Minimum Tax (AMT) bill.

Qualified Expenditures. The credit equals 30% of qualified expenditures (including costs for site preparation, assembly, installation, piping, and wiring) for the following:

·       Qualified solar electricity generating equipment for your U.S. residence, including a vacation home.

·       Qualified solar water heating equipment for your U.S. residence, including a vacation home. To qualify for the credit, at least half of the energy used to heat water for the property must be generated by the solar water heating equipment. You cannot claim the credit for equipment used to heat a swimming pool or hot tub.

State and Local Incentives May Be Available. You also might be eligible for state and local tax benefits, subsidized state and local financing deals, and utility company rebates.

Expanded 30% Credit Opportunities for 2016 Installations

For 2017 and beyond, the 30% credit is limited to expenditures for qualified solar electricity generating equipment and solar water heating equipment. For 2016 installations, you can claim a 30% credit for the following expenditures:

·       Qualified wind energy equipment for a U.S. residence, including a vacation home.

·       Qualified geothermal heat pump equipment for a U.S. residence, including a vacation home.

·       Qualified fuel cell electricity generating equipment for a U.S. principal residence. The maximum credit is limited to $500 for each half kilowatt of fuel cell capacity.

$500 Credit for More Modest 2016 Installations

A much more modest residential energy credit also expired at the end of 2016. It had a lifetime maximum of $500 and covered qualified expenditures for advanced main air circulating fans; natural gas, propane, and oil furnaces and hot water boilers; electric heat pumps; electric heat pump water heaters; biomass fuel stoves; high-efficiency central air conditioners; natural gas, propane, and oil water heaters; energy-efficient windows, skylights, and doors; energy-efficient roofing products; and energy-efficient insulation.

Credit for New Plug-in Electric Vehicles

Another “green energy” break that is still on the books for 2017 and beyond is the federal income tax credit for qualifying new (not used) plug-in electric vehicles. The credit can be worth up to $7,500.

Eligibility Rules. To be eligible for the credit, a vehicle must draw propulsion from a battery with at least four kilowatt hours of capacity; use an external source of energy to recharge the battery (thus the term plug-in); be used primarily on public streets, roads, and highways; have four wheels; meet applicable federal emission and clean air standards; and be used primarily in the U.S. It can be either fully electric or a plug-in electric/gasoline hybrid. Finally, the vehicle must be new and be purchased rather than leased. If you lease an eligible vehicle, the credit belongs to the manufacturer, which may be factored into a lower lease payment.

The credit equals $2,500 for a vehicle powered by a four kilowatt-hour battery, with an additional $417 for each kilowatt hour of battery capacity beyond four hours. The maximum credit is $7,500. Buyers of qualifying vehicles can rely on the manufacturer’s or distributor’s certification of the allowable credit amount. The credit can be used to offset your regular federal income tax liability and any AMT that you owe. There are no income restrictions.

State Incentives May Be Available. You may be eligible for state income tax credits, rebates, or reduced vehicle taxes and registration fees for buying or leasing qualifying electric vehicles.

Depending on your situation, these “green energy” credits could be lucrative. Contact us if you have questions or want more information.