Whether you are an accounting professional or tax professional, understanding how taxes work in the new "gig economy" and "sharing economy" has quickly become important knowledge. The nature of the new gig and sharing economies can present taxation challenges not just for the taxpayer but also for tax professionals. If you are a CPA, Enrolled Agent, or other tax professional, understanding how the gig economy and taxes is essential for the future success of your accounting or tax career.
We sometimes use the terms "gig" and "sharing" economy interchangeably to describe these new fast-growing, entrepreneurial-driven business operations. While these two terms are related, there is a slight difference between the two. We'll discuss the specifics of each of these and how they differ below.
What is a Gig Economy?
In a gig economy, workers operate on a temporary basis, often part time, rather than being full-time employees. These workers are usually independent contractors who may also offer their services on a freelance basis to more than one employer over a period of time. An example of this may be a freelance journalist who travels to regional sporting contests and uses the Internet to send his stories and reports back to the hometown newspapers of the respective teams involved in the events that he has just witnessed.
By definition, a worker in a gig economy performs a certain agreed-upon service or set of services for a temporary employer. The worker is not a full-time employee in the classic sense but may possibly work full-time hours as an independent contractor for an agreed-upon period of time.
Examples of Gig Economy Jobs
There are many types of "gig work" available in the gig economy. These are some examples of gig economy roles often performed by gig economy workers:
- driver for a ride-sharing service such as Uber or Lyft
- pickup and delivery of restaurant takeout orders for service providers like Grubhub or DoorDash
- contract grocery shopper and deliverer through Instacart or TaskRabbit
- freelance software coder
- drywall plasterer for a specific house project
- temporary replacement childcare worker to cover illness
- adjunct part-time professor at a community college
What is a Sharing Economy?
In a sharing economy, “sellers” allow “buyers” to gain shared access to assets, goods, or services. This access is often managed via an online platform that handles all aspects of the transaction such as advertising, receiving payment from the buyer, and transferring funds to the seller (minus a commission for the owner of the platform that facilitates the transaction).
Examples of Sharing Economy Offers and Services
Here are a few examples of offerings and services made available by sellers in the sharing economy:
- hourly or daily rental of unused vehicles via car-sharing service such as Zipcar
- rental of a room or house via Airbnb or VRBO
- sale or rental of clothes via a closet-sharing site such as Tulerie
- matching freelance workers to available work assignments via Upwork
- co-working or shared office space for remote workers via WeWork
Where Did the Gig and Sharing Economies Come From?
As a result of population growth and the advances in technology development during the last 50 years in particular, the business and working economies of nations around the world have evolved to reflect a reality that would be almost unrecognizable to a visitor from the mid-20th century.
Rather than working for a single employer for their entire career, which had been common in the past, individuals in the 21st century tend to work for numerous employers during short bursts of their lifetime—including sometimes working simultaneously for themselves and two or more employers on a part-time basis.
Many industries have been disrupted by the arrival of entrepreneurial companies and individuals who provide alternatives to the traditional product and service offerings. For example, alternatives now exist to the traditional taxi-and-hotel routine of travelers and vacationers and for diverse services such as grocery shopping and fashion selection. And in terms of the workforce, an individual may work a part-time “gig” as a shared-car driver, while his neighbor shares her house by renting out a room to a visitor on a short-term basis.
The nature of this new gig and sharing economy presents many challenges to taxation authorities and tax professionals in our efforts to track and report an individual’s income and expenses related to the products or services that are now delivered sometimes in-person and sometimes electronically.
Why Gig Economies Works
From an employer’s point of view, a gig worker is generally a much more flexible and inexpensive solution to its staffing problems. The employer can select the best available candidate for a particular role and need only pay the person’s salary for the duration of the contracted engagement. There is no need to consider employee benefits or payroll taxes, and the result is that the employer can provide its services to the market more efficiently and less expensively than its competitors.
For services that can be performed online, the employer has the advantage of being able to select the best candidate for the role, regardless of the person’s physical location. As the recent pandemic has demonstrated, many jobs that were once thought of as being office-based only can be performed quite adequately online—thus avoiding the cost to the employer of having to provide a desk and office space for the contractor.
Gig workers enjoy the flexibility in work environment; they often choose their hours, assignments, and working locations. For those that choose this lifestyle, they often boast about the independence gained, while acknowledging they have given up some corporate benefits.
Why Sharing Economies Work
Sharing economies allow owners and renters to take advantage of the availability of underused assets. Owners turn asset downtime into income by renting assets to buyers who wish to use it for a short time at a fraction of the cost of ownership. Parked cars, unused bedrooms or holiday homes, and designer clothing and accessories can now be rented out when not in use.
Airbnb is one of the largest disrupters in the vacation lodging market, and with regard to accommodation services, a study released by the Brookings Institute indicates that the rates offered by Airbnb are some 30 to 60% lower than hotel rates around the world. The sharing of these underutilized assets is thus a service offered in a sharing economy.
Become an Expert on the Gig Economy and Taxes
If you are a tax professional or accounting professional, you can become an expert on the gig economy. WebCE is excited to offer the online course Gigs and Taxes, designed for accountants and CPAs, Enrolled Agents (EAs), and other tax professionals.
In this course, you will review some of the typical products and services offered within the gig and sharing economy, with emphasis on shared-car services and shared rental services. You’ll learn about the main tax issues relating to these services along with how to properly report income from these services to the IRS.
Learn about Home Office Tax Deductions
In today's economy, accounting and tax professionals like CPAs and Enrolled Agents can also get a leg up on the competition by knowing everything about home office tax deductions. Many taxpayers, including those who participate in the gig and sharing economies, operate businesses from offices located in their homes that may qualify for a home-office deduction.
That's why WebCE offers the online course Home Office Deductions, designed for CPAs, EAs, and other tax professionals. This continuing education course goes over the qualifications for a home office deduction, the actual expense and simplified methods of determining the deduction, the recordkeeping requirements for deducting a home office, and more.
To order these courses and more, use the buttons below to visit the WebCE Course Catalog.