Approximately 69 percent of entrepreneurs who participate in so-called “sharing economy” services such as Uber, Lyft and Airbnb received absolutely no tax guidance from the companies they work with, according to a new survey.
The survey, from the National Association for the Self-Employed, pointed to the importance of educating shared-economy entrepreneurs and merchants who participate in services like Etsy about the fact that they are operating a self-employed, small business and need to understand taxes.
Over 90 percent of the survey respondents said they use a tax professional or tax software to help prepare their taxes. Of those who used a professional tax preparer or software, over 50 percent paid over $150 to do their taxes. The results were evenly split between those who set aside money to pay their 2015 tax bills and those who did not.
“Those participating in the sharing economy are self-employed, small business owners, whether they like it or not,” said NASE vice president for government relations and public affairs Katie Vlietstra in a statement. “They are operating a legitimate business and are subject to a specific set of tax obligations, business regulations and reporting requirements. Regardless if these entrepreneurs are only participating in the sharing economy for a fixed amount of time, they are still operating a self-employed, small business. Even working a few hours on the weekend to pay off some outstanding debt still has financial and tax responsibilities that is important for them to fully understand.”
The survey was sent in March to more than 40,000 small businesses and received over 500 responses, mainly from the self-employed, about their participation in the sharing economy.
“As this new and important small business demographic grows, it is important that the tax code evolves along with the sharing economy to accurately reflect the taxable income of those operating in it,” said Caroline Bruckner, managing director of American University’s Kogod Tax Policy Center. “For instance, the fact that those in the sharing economy did not receive any tax guidance suggests that unless those participating use professional tax preparers, they run the risk of being shortchanged by the tax code and not fully understanding the financial and tax implications of running a shared economy business.”
Kogod plans to release a report later this month analyzing the tax compliance challenges faced by small businesses operating in the sharing economy and how that affects the IRS’s ability to fairly administer the tax code.
The survey asked small business owners about their current participation in the sharing economy and found that only 22 percent of the respondents earned money from the sharing economy in 2015. While more than 4 percent of respondents spent more than 35 hours per week offering services via sharing economy platforms, an overwhelming 72.5 percent majority spent less than 10 hours a week. Nearly three-quarters of the respondents (74 percent) who said they were participating in the sharing economy earned between $1,000 and $5,000 through the sharing economy platform or app in 2015. A 53 percent majority of respondents said they worked full-time (or nearly full-time) on another job outside of any participation in the sharing economy.
According to the latest U.S. Census figures from 2013, small, self-employed and micro-businesses (with nine or fewer employees) account for over 78 percent of the overall small business community, representing more than 27.5 million entities nationwide. The self-employed have been growing faster than any other small business group over the past 10 years.
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