Several online articles on Forbes.com highlight broad changes in our economy and what implications they have for the future. Even government agencies like the IRS are using the term 'the Sharing Economy' to refer to a large-scale trend of renting out what you own for money, facilitated by 'Big Data' companies that will handle all your marketing and back office work.
What is it? Well, it’s at least one step away from individualism and consumerism and one step towards a more collectivist society with a twist: you can get paid for what you share.
It used to be a major mark of the middle and upper class to be able to own things. You own your home. You own a car for each person of a driving age in your family. You own a garden that you’re responsible for. You own an air-stream so you don’t have to use a hotel.
In the last few decades or so, society as a whole is trending towards less ownership, less stuff, and more minimalism. Riding the bus or a bike or being a one-car family is superior to owning multiple vehicles. Renting a house is a more viable option than owning.
Enter Uber, Airbnb, VRBO, Lyft, and the like (Wildcat2GO for you Manhattan locals, or Green Apple Bikes). You can now rent almost anything you don’t own from almost anyone and, on the flip side, you can rent out almost anything you do own for cash money. All this brought to you by handy websites that facilitate connecting owners to clients and processing the payments.
We’re not going to weigh in on whether renting out your guest room or becoming a driver on weekends is a financially sound decision, but there are some unique factors to keep track of.
Taxes. Yep, always taxes.
- Any rental or service you perform for income is taxable and should be reported.
- Your third-party facilitator (Airbnb, Uber etc.) may or may not send you any sort of tax reporting document or summary. You are ultimately responsible for tracking your own income and expenses, especially if you make less than some threshold number and they’re not legally required to send you a 1099.
- Depending on the service or rental, there are different places you may need to report income and expenses on your tax return. Be sure to consult a tax professional ahead of time to fully take advantage and not be surprised with a big bill come tax time.
- Many auto insurance policies DO NOT COVER any accidents that happen while you’re driving somebody around for compensation.
- Similarly, home insurance policies with certain companies may not adequately cover your risk exposure for renting out a single room in your home, or a whole separate guest house. Check with your insurance agent as well as the third party facilitator (Airbnb, VRBO) to see if they offer coverage, and do your homework on how good the coverage is.
Like Forbes says, Big Data processors that handle connecting clients and taking payments make everything incredibly simple as far as getting the ‘business’ going. But make sure you double check everything before being blindsided.
For further reading: