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Side Hustles and Tax Tussles: Tax in the Gig and Share Economy Part Three
The past month we've explored how side hustles can affect your client's taxes. You're now equipped to help them avoid most side hustle tax tussles, but there is one other major area of the gig economy that we must cover. That is when your clients decide to share their personal property for a fee. Don't confuse this concept of the share economy with your client renting out real estate, like we discussed in part 2. The IRS has a different definition for personal property, one that does not include real estate. Which, you guessed it, means there are different tax implications. To help you avoid tax tussles for your clients, we're going cover the following: ● What's the difference between personal property and real estate? ● Where do we report personal property rental income? ● What can we deduct from personal property rental income?
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CURRENT EDITION
Games Industry Lore 101: Basics Tax Practitioners Should Know
When building your book of business, especially small business clients that do the heavy lifting due to their recurring complex tax filings, you might ponder seeking out clients in the video games industry. Salivating at the prospect of capturing just a tiny sliver of that nearly half-trillion market valuation as your social media feeds flood with news and memes from a random indie game you’ve never heard of, you wonder how to attract and retain game developer clients. But there’s several things that tax practitioners should know about how the games industry works, and its innumerable oddities, before diving head-first into taking on game developers as business or individual clients. Ready to press play?
The NIL Tax Playbook
Regardless of where you stand on the issue, student athletes have been able to tap into a new revenue stream since July 1st, 2021. This is when the National Collegiate Athletic Association (NCAA) began to allow students to profit from their name, image, and likeness (NIL). Which leads to new tax implications for a group of taxpayers who may have never filed a tax return before. As this has unfolded, it reminded me of taxpayers who were on the forefront of making money online. It was something new, so not many taxpayers or even tax practitioners knew how to handle it. It was real money, but was it really a business? I’ve loved seeing it evolve. Now, right off the back of COVID-19, we have student athletes who are able to take advantage of their online presence and also make money. But the income people were making 20 years ago online is pennies compared to what some students can make through NIL deals. In 6 short years, students have gone from not being able to profit monetarily from their likeness while competing as a student to now potentially making millions.
D&A Planning After the One Big Beautiful Bill Act
After 2021, whether an expenditure was deducted currently or recovered through depreciation often affected timing, but it typically did not create a meaningful advantage from a Section 163(j) perspective. The restoration of depreciation, amortization, and depletion addbacks in the computation of adjusted taxable income (“ATI”) has changed that analysis and created a new opportunity for taxpayers with actual or anticipated interest limitation exposure. As a result, taxpayers should reconsider whether certain expenditures that historically may have been deducted immediately can instead be capitalized into depreciable or amortizable property in order to improve their Section 163(j) profile.
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Think Outside the Tax Box provides tax reduction strategies along with practical
implementation advice in order to reduce your clients’ federal tax bill with ease.
