Listing a guest bedroom on Airbnb or picking up some side income driving for Uber? You need to be thinking about taxes already. Whether or not you receive a 1099 in January, you have the responsibility of reporting income and supporting deductions.
You may be paying more attention to legislation being debated at the Massachusetts Senate that could affect the Uber/Lyft business model. Background checks and a new certification process may make signing up more cumbersome. But what is rarely addressed in the debates are taxes.
These tax planning tips will make filing your 1040 easier. Because as the summer flies by, tax season will be here before you know it.
First off, you are self-employed
If you get paid through an online platform, you are a small business owner.
Whether you are making home decorations and selling them through etsy or picking up handyman-type work through taskrabbit, you need to keep track of what you earn.
What if you never receive a 1099?
Even if the company does not send you a 1099-MISC or a 1099-K, you need to report all the income you earn. There are some loopholes that may mean you do not receive a 1099. This does not mean you should just leave it off the 1040 to avoid filing an added form.
This may be a side-line interest or hobby, but must be treated seriously or you could find an audit letter in your mailbox from the IRS. Also consider that this income may be taxed at your highest income bracket, so accurately tracking deductions is important.
Learn about available deductions
Can you deduct mileage or repairs for an Airbnb property? Could you offset a net loss against your wages? Our March 23 blog post covered business versus hobby losses. These rules are complicated, but generally will only allow you to deduct expenses up to your total earnings.
Record keeping is crucial with deductions. Once you learn what can be deducted, save receipts or keep a log of mileage or expenses in case the IRS has questions.
If you fail to report $10,000 of sideline income, a tax bill along with penalties and interest could come as a unwelcome surprise. Planning ahead is the best way to limit tax exposure, but when the IRS initiates an audit seek professional assistance.