The Internal Revenue Service is highlighting a variety of online resources to help small business owners and self-employed individuals as part of National Small Business Week from April 29 to May 5. Some of these tools focus on an emerging area of business activity — the sharing economy – also referred to as the on-demand, gig or access economy.
People involved in the sharing economy engage in activities such as renting a spare bedroom, providing car rides or offering many other goods or services. Because there are tax implications for companies providing the services and the individuals performing them, the IRS has created special products to help these businesses and workers understand their tax responsibilities:
Check for proper tax withholding
Taxes are pay-as-you-go. This means that people need to pay most of their tax during the year, as income is received, rather than paying at the end of the year. Because of the far-reaching tax changes taking effect this year, the IRS urges all employees, including those with other sources of income, to perform a Paycheck Checkup now. Doing so now will help avoid an unexpected tax bill when they file their 2018 taxes in early 2019. The easiest way to do that is to use the newly-revised Withholding Calculator, available on IRS.gov.
In recent years, the IRS has seen an uptick in people subject to estimated tax penalties. These penalties normally apply when someone underpays their taxes. The number of people who paid this penalty jumped from 7.2 million in 2010 to 10 million in 2015, an increase of nearly 40 percent. The penalty amount varies, but can be several hundred dollars.
The IRS urges taxpayers to check into their options to avoid these penalties. This is especially important for people in the sharing economy, those with more than one job and those with major changes in their life, like a recent marriage or a new child.
There are two ways to pay tax:
More information about tax withholding and estimated tax can be found on the agency’s Pay As You Go web page, as well as in Publication 505, Tax Withholding and Estimated Tax.
Other small business products
The IRS provides an overview of other products to help small businesses in a YouTube video. Some featured products for small business owners and self-employed individuals are: