[IMGCAP(1)]The sharing economy has created untold numbers of micro-entrepreneurs, who provide services through digital-age apps.

Airbnb, Lyft, Sidecar, Snapgoods and Uber are just a few of the companies enabling the sharing economy. But many who engage in this form of entrepreneurship find it much easier to get their business up and running than to deal with keeping track of profits, expenses and taxes. Yet the revenue they take in is still income, and most will need professional advice this upcoming filing season in order to get it right.

More guests used Airbnb this past summer than the population of Greece, Sweden or Switzerland, according to Derek Davis, founder and chief executive of Shared Economy CPA.

“Those who enter the sharing economy may be from an average family looking to supplement their income, or jumping into hosting as a full-time gig,” said Davis. “However, they are responsible for their own taxes and tax planning.”

Since becoming a business person is a new experience for most, they will need guidance and direction on even some of the simpler aspects of the activity, according to Davis.

He advises Airbnb hosts to account for their income and expenses on the cash basis method and to watch their withholding. “If they haven’t already done so, they should submit their tax information to Airbnb by completing IRS Form W-9,” he said. “If Airbnb does not have this information on file, they are required by the IRS to withhold 28 percent from the host’s payments and remit it to the IRS. Unless your taxable income is at least $151,200 for a married couple or $90,750 for a single, you have let them have your hard earned money all year interest free.”

“Don’t forget to capture all of your deductions,” Davis cautions sharing economy entrepreneurs. “For Airbnb, this means the obvious rent, utilities, insurance and repairs expenses. This would include any cash spent for the comfort of guests, such as a bed, duvet cover and window treatments that are designated for the exclusive use of your guests.”

Many are surprised that occupancy tax rates, or hotel taxes, apply to Airbnb hosts. “More and more cities are cracking down on these,” Davis noted. Also called lodging tax, room tax, or tourist tax, it is simply a tax on the rental of rooms that a state or locality may require.

“This means that visitors will have to pay the mandatory tax of the total rental amount to the city if they stay less than 30 days in your rental,” said Davis. “In addition, every municipality has its own licensing requirements, which typically need to be executed within 30 days of your hosting venture. Noncompliance could mean penalties, fines and possible retroactive taxes assessed on your Airbnb business.”

“The reason for this is that for thousands of traditional lodging owners and hosts there are potentially difficult times ahead as hosting sites such as Airbnb are suspected of taking away revenues and future business,” he added. “Most cities are now mandating all short-term rentals pay the required taxes that hotels and traditional bed and breakfasts pay.”

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