There’s a whole new economy out there. The standard method of doing a job for a business or an agency and getting paid for that job is moving over to make room for the sharing economy.
In the sharing economy, rather than businesses selling goods and services to consumers, individuals provide these services and are paid, peer to peer. You might rent your home on Airbnb, drive for Uber or provide a task for someone through TaskRabbit. These are three of the big names in the sharing economy.
A Time magazine survey of 3,000 people done in November 2015 found that 22 percent of these Americans had earned money through the sharing economy. Some of those in the survey reported that they received as much as 40 percent of their income from the sharing economy.
Here in Alaska, ride-sharing businesses such as Lyft and Uber are just getting started. Renting a home or an apartment through Airbnb or HomeAway is another common way people are participating in the sharing economy. Last week, one of my sons who lives in the Denver area, rented a car from an individual through a ride-sharing platform. The sharing economy provides many avenues for both those providing the service and for those needing the service.
Many folks who participate in these peer-to-peer services get so involved with the personal nature of the interaction that they forget this is a business with insurance, liability and tax implications. There are some adjustments you must make to be successful in this business relationship.
Records are crucial for any business. You need to establish a set of books to track both income and expenses. Many of these peer-to-peer exchanges are done on the internet through an app and the sites themselves provide a trackable list of income from these activities. However, there is no record of the expense side of this equation. Careful tracking of expenses is necessary to give you an accurate idea of the net income from your activity. With a home share, you need to track the costs associated with providing that space for someone to rent. That includes cleaning, furnishings, supplies, utilities, depreciation and insurance.
This extra income doesn’t come without risk. Your homeowner’s policy won’t cut it when it comes to insuring you. At the least, you need to add insurance coverage to offset the increased risk. Call your insurance company to see what your current policy covers and what you may need to add. Several platforms that host rental opportunities, such as Airbnb and HomeAway, have their own insurance package to protect you from liability claims, property damage and bodily harm. It’s a good idea to check with at least three sources for quotes on insurance before deciding which policy to buy.
Another challenge for many people working in the sharing economy is taxes. You earn money, you owe taxes on that income. Your tax preparer is a great place to start in determining your tax liability from this increased income. There is a good publication written by Consumer Action called “Tax basics for earners in the ‘sharing economy,’” available on its website at http://bit.ly/2rNVmIQ. Be sure to check it carefully when you are considering entering the business. Since the money gained has no taxes withheld, it may be necessary for you to pay a quarterly estimated tax. Evaluate how often you earn and how much income is coming in to determine if you should pay quarterly or increase your withholding on other income to cover these additional taxes. In addition to taxes on the income, as an independent contractor, you will also owe self-employment tax.
Earning money though the sharing economy can be a great side job or can become the major portion of your income. However, be sure you keep good business records and know how the additional income affects your insurance and tax bills.
Roxie Rodgers Dinstel is associate director of the Cooperative Extension Service, a part of the University of Alaska Fairbanks, working in cooperation with the U.S. Department of Agriculture. Questions or column requests can be e-mailed to her at firstname.lastname@example.org or by calling (907)474-7201.