Tax and the Sharing Economy

Airbnb. Bitcoin. Bicycle sharing services. The ability for people and business to exchange goods and services is changing rapidly.

So how does this effect your business?

Are you losing out by not using them? While only you can answer that by comparing the costs with the way you currently procure these resources, they all have tax implications, and ones you may not be aware of until tax time, and they could hurt!

How popular are these platforms?

Before we worry, let’s take a look at how significant these new ways of doing business are:

Airbnb

An article by Danny Eckler in Crain’s Chicago said, “During the year ended June 30, there were 4,550 Airbnb hosts in the Chicago market who hosted a total of 165,800 guests.”

A typical Chicago Airbnb host-one who has hosted guests consistently for more than a year-took in $8,300 over 77 nights. And this is just Chicago! Airbnb is global.

Bitcoin:

Forbes Magazine estimates that there is $3.5 billion in Bitcoin in circulation and about 100,000 transactions per day in this virtual currency.  This indicates that buying and selling in Bitcoin is not insignificant. However, like all investments, it is subject to the whims of the market. Using bitcoin is like transacting business in a foreign currency with all the uncertainty that goes with exchange rate volatility.

Bike Sharing:

According to a 2014 Census Bureau report, bicycling to work experienced the highest growth since 2000 than any other mode of transportation. It is still a small percentage of the population (the report tagged it as 786,000). The report also reveals that cycling to work is more popular among younger workers and in cities. More exercise for your employees can mean a healthier workforce which can translate to more productivity and fewer sick days (unless they have an accident).

Should You or Shouldn’t You?

Could you gain an advantage from swapping abodes with other business owners?

If you do, be prepared to receive a 1099-K from Airbnb showing the value of the rent provided. Remember, no taxes are withheld from these proceeds so you may need to make estimated federal and state payments (April 15, June 15, September 15, and January 15) on these inflows during the year.

What about bike sharing services like Divvy? Do you offer employees reimbursement for this?

Guess what. The value is probably taxable to your employee and needs to be included on their W-2’s, with tax withheld from the value. This is according to U.S. Treasury Letter Number: 2013-0032. On the other hand, if you reimburse employees (up to a limit) for using their own bike that they regularly use to commute to work, the reimbursement can be excluded.

Next up – Bitcoin.

Bitcoin is virtual currency because it is not issued by any central authority. The IRS has ruled that virtual currency, such as Bitcoin, is property and not cash. Because of this, when you accept or disburse a virtual currency to obtain or sell services or products, you are subject to the IRS rules for trading property.

This requires a taxpayer to ascertain the fair market value of the virtual currency in US dollars on the date of the transaction. This could lead to capital gains and losses which have limitations on the deductibility of losses (not gains, unfortunately). To me this seems like a lot of work for no discernible benefit.

Just when something seems like a great deal and easy-it isn’t! So take advantage of these new markets, but be prepared to deal with a very old problem.

SHAMROCK vCFO Services in Naperville, IL specializes in helping small and medium size businesses with strategy, taxes, accounting, and financial performance management. Steve Shamrock left big companies to help smaller ones energize the economy.