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The Sharing Economy

Posted on Posted in Individual

by Caroline Delaney |  Senior Accountant

What to expect at tax season if you earn income from Airbnb, Uber, Lyft, Turo, etc.

Renting out your house, condo, apartment, or mobile home on Airbnb

Renting out a vacation property to others can be profitable. If you do this, you must normally report the rental income on your tax return. You may not have to report the rent, however, if the rental period is short and you also use the property as your home. Here are some tips that you should know:

Schedule E - You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net Investment Income Tax. 

Used as a HomeIf the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received.

Divide Expenses - If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between rental use and personal use. To figure how to divide your costs, you must compare the number of days for each type of use with the total days of use. 

Personal Use - Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also considered personal use. 

Schedule A - Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses. 

Rented Less than 15 Days - If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income. In this case you deduct your qualified expenses on Schedule A. 

 

Earning income from Uber, Lyft, Turo, and other ride-sharing companies

Individuals who earn income from these ride-sharing companies are usually considered independent contractors, which has self-employment tax implications.  When you receive a payment from one of these services, no taxes have been taken out.  You must be aware that you are responsible for paying federal and state income taxes as well as Social Security and Medicare on your earned income. 

During tax season, you will not receive a W-2 from the ride-sharing company you work for, you will be receiving a Form 1099.  You’ll report your self-employment income and expenses on Schedule C of your Form 1040.  You will also need to fill out Schedule SE for self-employment tax if you earn more than $400. 

You are able to deduct the expenses related to your ride-sharing income including gas, oil, repairs, insurance, maintenance, depreciation, and lease payments.  However, if you use your vehicle for personal use and ride-sharing, you can only deduct the portion of your expenses that directly relate to your ride-sharing earnings.  Keep track of all your deductions by saving receipts, mileage logs, and any other relevant documentation. 

Why Do We Care About Politicians’ Tax Returns?

Posted on Posted in Individual

by Caroline Delaney |  Senior Accountant


The American people want to see financial transparency from their presidential candidates.  The tradition of politicians releasing their tax returns begin in 1973 when the IRS audited Richard Nixon regarding a suspicious charitable contribution.  One of Nixon’s most famous quotes took place among this financial scandal:

“People have got to know whether or not their president is a crook. Well, I’m not a crook.”

Nixon eventually released financial information to the public, and this became the new standard for presidential candidates in order to gain the trust of American citizens.  Americans want to see their candidates’ tax returns mainly for the three following reasons:  to see their income and tax rates, charitable contributions, and any potential conflicts of interest.

 

Candidates' Income & Tax Rates

Many voters are curious about how much income each political candidate makes and how much tax that candidate pays as a proportion of his or her income.  This allows voters to gain a better general understanding of how the candidate makes his or her money.  For example, is it through earned income or from capital gains?  This idea also allows the voters to have a better understanding of a candidate’s net worth and if the amounts on their tax returns match up with what he or she is claiming publicly.  Effective tax rates are also a point that voters seem to analyze.  Voters like to see whether each candidate has a relatively high or low effective tax rate – meaning, how hard does the candidate try to reduce his or her federal tax liability?

 

Charitable Contributions

Charitable contributions listed on the candidates’ tax returns can confirm any candidate’s claim about how much he or she donated to charity over the years.  The charitable contributions section of the tax return could also provide evidence proving that a candidate is less charitable than he or she led on during debates, interviews, and other public appearances.  It also provides the details of the types of charities with which the candidate is involved.  For example, Hillary Clinton released 8 years-worth of tax returns and donated mostly to the Clinton Family Foundation over that 8-year time period.

 

Conflicts of Interest

While it is clear that a candidate’s tax return can prove that individual is extremely wealthy, voters want to see where this money has come from over the years in order to identify any conflicts of interest.  For example, a candidate receiving money from foreign entities in prior years could be a red flag for many voters.  Donald Trump has business entities all over the world and could be making political decisions that would benefit those entities if elected president.   In Clinton’s case, her Family Foundation receives a great deal of funding from overseas.  Voters may feel like those foreign governments may expect special treatment if Clinton is elected president.

As you can see, the release of a candidate’s tax return can tell a great deal about that candidate’s financial position.  Tax returns are an effective way of disputing false claims or corroborating information that a candidate has claimed publicly.

Hillary Clinton Releases Tax Returns

Posted on Posted in Individual

by Caroline Delaney |  Senior Accountant

Hillary Clinton has recently released her tax returns for public viewing, and urges Donald Trump to do so as well.  You can find a summary of important information from Clinton’s returns in the table below:

 

hillary-taxes

 

You can see that the Clintons’ Adjusted Gross Income has decreased significantly in 2015 since Hillary began her presidential campaign.  Another noteworthy piece of this chart is the Clintons’ effective federal incomeeffective-tax-rate tax rate of 34%.  This effective tax rate is higher than any former president since Gerald Ford (who’s average was nearly 38% during his
presidency).  The lowest average tax rate among presidents was George H.W. Bush, who paid about 20%.  The Wall Street Journal states that the Clinton’s relatively high effective tax rate is “a sign of caution for a candidate facing intense scrutiny over her family’s finances.”

However, according to William Gale, a co-director of the Tax Policy Center in Washington D.C., “[The Clintons] are paying a much higher rate than, say, Mitt Romney did in 2012 or Warren Buffett does, because those people’s income is all in the form of capital gains.  The way the Clintons made their money last year translates to their high tax rate.”  Capital gains are generally taxed at a lower rate.  It’s difficult to tell now if the American citizens will care or not about her generally high effective tax rate.  It will certainly be up for discussion over the next few months.

Make sure to check out next week’s article entitled “Why Do We Care About Politicians’ Tax Returns?”  The article will shed some light on why the media and Americans scrutinize politicians and make voting decisions based on the candidates' personal finances.