Small business owners that offer goods and services through an online platform may be part of the sharing economy. Some participate part time while others operate full time. Activities such as ride sharing, freelancing, renting a spare bedroom and crowd funding are usually taxable.
Some sharing economy tips for small businesses to consider:
1. Taxes. Sharing economy activity is generally taxable. Payments received in the form of money, goods, property or services may require filing a tax return to report that income to the IRS.Tips. People often conduct sharing-economy activities electronically but tips in cash are still a common occurrence. Tips are generally subject to withholding. Small businesses or self-employed persons should report tips they receive as income on Schedule C.
2. Large Cash Amounts. Any person in a trade or business who receives more than $10,000 in cash in a single transaction or in related transactions must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, within 15 days after receiving payment.
3. Deductions. Expenses to carry on a trade or business are usually deductible. Examples include claiming the $.54 cents per mile rate for 2016 when using a car for a ride-sharing business. Or deducting the commission/fee charged by a freelancer marketplace service.
4. Estimated Payments. Small businesses in the sharing economy often need to make quarterly estimated tax payments to cover their tax obligation. Form 1040-ES, Estimated Tax for Individuals, will help to figure these payments. IRS Direct Pay is the fastest and easiest way to make these payments. The Treasury Department’s (EFTPS) system is also an option.
5. Records. Good records assist in monitoring a business’s progress, tracking deductible expenses and can substantiate items reported on tax returns. A good recordkeeping system includes a summary of all business transactions. Generally, it is best to record transactions on a daily basis to keep your records up-to-date.
For more information about taxes, cash receipts, deductions, estimated payments, and recordkeeping procedures for your small business, call our office today.
Source: Small Business Week Tax Tip 2017-03
If you have questions about starting, growing, protecting, understanding business taxes, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners and provide tax, accounting, financial analysis, business planning, and small business advisory services. For more information, call (727) 391-7373 or else visit us on the web at http://www.LindaStortzCPA.com.