A theme that came through at Part 1 and Part 2 of House Small Business Committee hearings in late May on The Sharing Economy: A Taxing Experience for New Entrepreneurs, was that these freelancers need help with their tax planning and compliance. For example, someone who signs up to drive for Uber or Lyft likely doesn't realize that they just became a self-employed entrepreneur with tax obligations that include:
- Keeping records of mileage for driving and other costs involved in being a driver (or freelancer for some other network platform operation).
- Quarterly estimated tax payments for federal and state income tax as well as federal self-employment taxes.
- Reconciling any 1099-MISC or 1099-K received against their records. And if they don't receive such a form, such as because the payment processor is only required to issue 1099-K and the freelancer did not have more than 200 transactions and over $20,000 of payments, sufficient records to report the income earned.
- Registration at the local level if required, such as for a business license tax. [See for example, San Francisco + 4/15/16 SFGate article.]
- Possibilities of favorable retirement plan options.
- Whether they want to operate as a sole proprietor or perhaps another form, such as a Subchapter S corporation.
And, even before jumping to the conclusion that one is a self-employed entrepreneur filing Schedule C, a determination is needed to be sure they are engaged in the activity for profit (it might instead be a hobby). Some drivers are just doing it for fun or to derive a little cash flow. [For more on this issue, see the nine factors of Reg. 1.183-2 and info below.]
Other new economy activities include renting our all or part of your home or other property, such as via Airbnb. That also raises some complex federal, state and local tax considerations. I also list marijuana operations in the realm of new economy activities and that raises various tax issues as well as ethical ones for the tax adviser.
The 4th Annual IRS-SJSU Small Business Tax Institute on June 22 in Santa Clara aims to help practitioners serving small business clients. We'll have practitioners and IRS folks explaining the rules, offering words of caution and we'll also address some of the ethical issues for practitioners [agenda].
I hope you'll check out the agenda and register - http://www.tax-institute.com.
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