MONEY Taxes

How the Sharing Economy Makes Tax Filing Tougher

Lyft driver
Lyft Being a Lyft driver may not feel too fun at tax time.

When you make money working for a business like Uber, Task Rabbit, or Airbnb, doing your taxes can a pain.

Before Jane LeBoeuf started driving for Uber and Lyft, doing her taxes was cheap and easy.

LeBoeuf would swing by the local H&R Block office, pay $150 and end up with a refund. But now, that is not the case.

The 32-year-old from Providence, R.I. paid $470 this year to a professional tax preparer, and her refund got eaten up by the taxes on her side gig income.

As it is with so many other millennials—whether they are driving for a car service, renting property through Airbnb.com, or picking up jobs through TaskRabbit.com—LeBoeuf needed help sorting out the complexities of freelance income that comes with a host of possible deductions.

“There are a lot of people out there who are starting to realize they don’t have it all together,” says Robert Wheeler, who runs an accounting firm in Santa Monica, Calif. “Things are just getting more complicated. People don’t know what to do.”

Accountants point out that one of the biggest problems they see with those earning a sharing-economy income is a lack of record-keeping.

Freelancers like LeBoeuf agree: “I just find it to be too much for me on a daily basis,” she says.

Sometimes all it takes is asking for record-keeping help during the first year. But others need constant attention. Here are some tips on how to get started:

1. Get the right help

Some accountants are starting to specialize in sharing economy tax strategies, like Derek Davis, 28, who is based in Culver City, Calif.

Davis says he had his eureka moment after a ride home from work one night with an Uber driver who had no idea what expenses he was allowed to deduct, like repairs and gas.

Otherwise, tax preparers who specialize in freelance or small businesses would know their way around a Schedule C, which is where freelancers report income.

Since just about anyone can hang out a shingle that says they do taxes, consider looking for a preparer with certified credentials, which you can find by searching the databases of the National Association of Tax Professionals or the National Association of Enrolled Agents.

2. Develop a record-keeping system

Independent contractors are responsible for recording all their income—not just what is sent to them on a Form 1099. Equally, they are responsible for tracking their own expenses. But this can get very complicated for those tracking mileage—when you can count more than just the actual Uber trips you drive, for instance.

And it can be dizzying for those renting out spaces in their homes. For starters, those renting for fewer than 14 days get a break—they do not owe taxes on the income. Go past that, however, and you can deduct any expense directly related to your rental.

Solutions range from traditional spreadsheets to new apps. Intuit, the parent company of TurboTax, partnered this year with the freelance marketplaces Fiverr.com, UpCounsel.com, and TaskRabbit to offer for free its new QuickBooks Online Self-Employed, which can be directly transferred to TurboTax.

Among independent efforts, Derek Davis developed his own free app—Tabby Tax—to help sharing economy workers keep track of expenses.

Drivers can use any number of tools such as MileIQ, EasyBiz Mileage Tracker, and Easy Mile Log to keep track of car expenses.

3. Know what you owe

LeBoeuf was surprised how much her extra income boosted her tax liability and lowered her usual refund. But some people are caught by an even greater surprise—owing money to the Internal Revenue Service.

Many new contractors learn the hard way that you have to pay taxes on freelance income quarterly rather than rely on an employer to deduct enough taxes from a paycheck. Most tax software programs, and any tax professional, should be able to generate an estimate of what you will have to pay based on your projected earnings. Then you can adjust as you go so you do not end up with a penalty for underpayment.

MONEY workplace etiquette

The Phrase You Should Never Use In Your Office Voicemail Message

office phone
Johnny Greig—Alamy

"Not available" conveys to the caller that you're not interested in their business. Here's what to say instead.

How many times a day when you make a phone call do you get someone’s voicemail and hear, “I’m not available?”

What exactly does that mean?

The person could be powdering their nose for two minutes, gone to a client meeting for two hours, on maternity leave for six months—or, have been transferred to the mailroom in Beijing! You have no idea.

You had phoned for a reason: to get information, to place an order, to extend an invitation to meet, to do business. But now you hang up in disgust, your mission thwarted.

Now you have to invest time figuring out your next, hopefully productive, step. Do you check the web for their corporate number, another branch number, or simply find another “source” altogether, giving your business to a competitor? Perhaps with your time constraint you are forced to simply table your project.

If this were your business, you’d have just lost a customer.

Now it’s time to check your own voicemail.

With all of the competition out there and access to information at one’s fingertips on the web, people have untold choices when they need a real estate attorney, a construction engineer, an investment advisor, a party planner, a temp agency… or whatever it is you do.

If you want to build your business, you need to build relationships, and this requires showing respect for your caller’s time and energy.

“Not available” is simply dismissive. It communicates to the person that their need is not that important to you.

And it either causes your potential customer to hang up, or to get stuck going through an obstacle course in which they get the main switchboard and are given the third degree: “What’s your name? What’s your affiliation? Why are you calling? Whom do you want to speak with?

The alternative is simple: Provide in your voice message a phone number and refer the caller to an assistant, a colleague, a cell number—any way of expediting their quest. Help your caller to reach someone who can, in your absence, be helpful and succeed in keeping the business.

And remember to update your voicemail message when appropriate. Recently I called an office and heard: “I’ll be back February 1st.” It happened to be March 17th!

Investing a mere 60 seconds can keep a client and their business while enhancing your reputation.

Arlene B. Isaacs is an executive coach in New York City.

MONEY Financial Planning

4 Things You Need to Change Your Career

Want to change your career or launch a new business? A financial planner explains the four things you need.

A few years ago a client, Peter, came to me and said, “I’m doing all the work, but my boss is making all the money. I could do this on my own, my way, and make a whole lot more.”

Peter was an instructor at an acting studio. He was working long hours for someone else, knew the business inside and out, and felt stuck. He wanted a change.

We talked through his dilemma. Peter wanted to know what he needed to do to venture out on his own and start his own acting academy.

Many of us find ourselves daydreaming about making such a bold life change, but few of us do it. So what is stopping us from taking the leap? Why don’t we have the courage to invest in ourselves?

Peter and his wife, Jeannie, sat down with me to chart out a plan. We determined that they needed four major boxes to be checked for Peter’s dream business to have a real shot at success:

  1. Support from the spouse
  2. Cash reserves
  3. A business plan
  4. Courage to take the leap

Let me break these down:

1. Support from the spouse: Peter and Jeannie had to be in full agreement that they were both ready to take on this new adventure together. In the beginning, they would have significant upfront investments in staffing, infrastructure, and signing a lease for the business. Money would be tight.

2. Cash reserves: Peter was concerned. “How much money can we free up for the startup costs?” he asked. We discussed the couple’s financial concerns, reviewed financial goals for their family, and acknowledged the trade-offs and sacrifices they would need to make. We determined a figure they were comfortable investing in their new business. Then we built a business plan around that number.

3. Business plan: It has been said that a goal without a plan is just a wish. Peter and Jeannie needed a written plan in place so that their wish could become a reality. Their business plan would serve as a step-by-step guide to building and growing the acting academy. It included projections for revenues, expenses, marketing strategies, and one-time costs.

Once we wrote the business plan, we had one final step remaining: the step that so many of us don’t have the courage to take. Peter and Jeannie had to trust in themselves, believe in their plan, and…

4. Take the Leap: Regardless of how confident we are, how prepared we feel, and how much support we have, this is a scary step. We have to walk away from our reliable paycheck, go down an unfamiliar road, and head out into the unknown.

I’m happy to share that Peter and Jeannie’s story is one of great success. They faced obstacles and bumps along the way, but Peter persevered and succeeded in accomplishing his goal. He is now running a thriving acting academy with multiple instructors and a growing staff. If you decide to invest in yourself, you will need to take the four steps too.

———-

Joe O’Boyle is a financial adviser with Voya Financial Advisors. Based in Beverly Hills, Calif., O’Boyle provides personalized, full service financial and retirement planning to individual and corporate clients. O’Boyle focuses on the entertainment, legal and medical industries, with a particular interest in educating Gen Xers and Millennials about the benefits of early retirement planning.

TIME Innovation

Five Best Ideas of the Day: March 12

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. Protecting whistleblowers protects national security.

By Mike German at the Brennan Center for Justice

2. Could we treat pain by switching off the region of the brain controlling that feeling?

By the University of Oxford

3. Small businesses are booming in China, and it might save their economy.

By Steven Butler and Ben Halder in Ozy

4. Not so fast: Apps using Apple’s new health technology could require FDA approval. That doesn’t come quick.

By Jonathan M. Gitlin in Ars Technica

5. We might feel better about driving electric cars, but they’re still not good for the environment.

By Bobby Magill in Quartz

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Innovation

Five Best Ideas of the Day: March 11

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. Special collaborative courts focus on rehabilitating troubled veterans. They’re working.

By Spencer Michels at PBS Newshour

2. PayPal runs a dead-simple microlending program that helps small businesses grow.

By Michelle Goodman in Entrepreneur

3. To make voters care, a radio station in L.A. picked a prototype non-voter and built their election coverage around him.

By Melody Kramer at Poynter.org

4. Can the mining industry become a responsible, reliable partner for local communities and the environment?

By Andrea Mustain in Kellogg Insight

5. Robert Mugabe is 91 years old. The world should prepare for a succession crisis in Zimbabwe.

By Helia Ighani at the Council on Foreign Relations

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Small Business

These Are the Best (and Worst) States for Business

hand-holding-open-sign
Getty Images

All of the 10 best states had unemployment rates below the national unemployment rate in 2013

While the United States was founded on the principle of equality for all people, the 50 states are decidedly unequal in providing opportunities for business. For companies choosing to locate in the United States, deciding the state in which to base their operations can be very difficult.

To determine America’s best states for business, 24/7 Wall St. identified nearly 50 measures that contribute to the business climate and reviewed them in each of the 50 states. The measures were classified into eight larger categories that independently measured various risks and benefits of doing business in each state. (Click here for a complete methodology.)

The health of a state’s economy, the result of a confluence of factors, is perhaps the most important consideration for businesses choosing a location. The growth of economic output in 2013 in seven of the 10 best states for business was greater than the national GDP growth rate of 1.8%.

Another indication of a healthy economy, the job market, was also strong in the 10 best states for business. All of the 10 states had unemployment rates below the national unemployment rate of 7.4% in 2013. Four of the worst states for business had unemployment rates that exceeded the national rate.

Click here for the best states for business

Click here for the worst states for business

However, while a state’s economy is tied to a host of factors, not all factors benefit businesses in the same way. The business climate in some states was more favorable to companies primarily concerned with minimizing the costs and risks of operating a business. These states, which include North Dakota, Wyoming, and Texas, tended to enjoy ample natural resources, low cost of living, and low regulation.

Some states benefit from a well-educated and highly skilled labor force. They are able to attract businesses that require these skills, such as professional and business services, health and education services, and information. In return, these businesses drive economic growth in these states through technology and innovation. These states include Massachusetts, Virginia, and Minnesota.

While it is emphasized more in some industries than in others, a low cost of doing business is a major reason to choose to operate in a particular state. The average cost of goods and services in six of the best states for business was lower than the national average. This was generally driven by beneficial tax climates, lower expenses from utilities and real estate, and lower average employee compensations.

Although the type and size of operating costs vary considerably between industries, wages are a major expense for many businesses. The average wage and salary in three of the 10 best states for business was roughly inline with the national average of $50,012 in 2013, while in five other states, average wages were below the national figure.

While lower wages lower the cost of doing business, they are also frequently tied to jobs with lower educational attainment. Among the five best states for business with lower than average wages, three had lower educational attainment rates than the national figure. In these states, including North Dakota and Wyoming, the prevalence of industries that require high-skilled labor was also relatively low.

Nevertheless, the percent of STEM jobs in a majority of the best states for business — jobs related to science, technology, engineering, or mathematics — was generally high. At least one in five of all jobs in eight of the 10 best states for business were STEM jobs. On the other hand, the percent of jobs in STEM fields was relatively low in the worst states for business.

In addition to a highly-educated labor force, access to capital can also drive innovation in a state. In 2013, 13.26 venture capital deals were made per 1 million Americans. In seven of the worst states for business, there were fewer than three such deals per 1 million residents. In the best states, on the other hand, investments were far more likely. In Massachusetts, there were 57 venture capital deals made per 1 million state residents, by far the highest nationwide.

These are the best (and worst) states for business.

The Best States for Business

10. Minnesota
> Real GDP growth, 2012-2013: 2.8% (13th highest)
> Average wages and salaries, 2013: $49,222 (14th highest)
> Pct. of adults with bachelor’s degree, 2013: 33.5% (10th highest)
> Patents issued to residents, 2013: 4,292 (9th highest)
> Projected working-age population growth, 2010-2020: 1.7% (9th highest)

Based on eight categories, including 47 measures, Minnesota is the 10th best state for business in the country. Informing the state’s high quality of life rank, just 8.2% of Minnesotans did not have health insurance in 2013, the fifth lowest rate nationwide. Also, the state was one of the safest, with a violent crime rate of 223.2 reported incidents per 100,000 people, among the lowest rates in the nation.

The state also received one of the highest scores for Infrastructure. Compared with other states, Minnesota businesses can also expect relatively well functioning transportation system. For example, just 11.5% of the state’s bridges were deemed structurally deficient or functionally obsolete, the lowest rate nationwide and less than half the national percentage of 24.3%. Businesses in the state also have the benefit of a relatively well-educated workforce. More than one-third of adults had at least a bachelor’s degree versus less than 30% of Americans. And 92.4% of state adults had completed at least high school as of 2013, the fourth highest rate in the country.

ALSO READ: America’s Happiest and Most Miserable States

9. North Dakota
> Real GDP growth, 2012-2013: 9.7% (the highest)
> Average wages and salaries, 2013: $46,775 (20th highest)
> Pct. of adults with bachelor’s degree, 2013: 27.1% (20th lowest)
> Patents issued to residents, 2013: 111 (2nd lowest)
> Projected working-age population growth, 2010-2020: 0.4% (2nd lowest)

North Dakota’s oil boom has spurred strong growth throughout the state’s industries, in residents’ personal incomes, and in employment. Less than 3% of the workforce was unemployed in 2013, the lowest in the country. As a consequence of the high levels of investment and spending in the state, North Dakota’s GDP grew nearly 10% in 2013. While this was by far the highest growth rate nationwide and more than five times the national growth rate of 1.8%, growth may slow considerably if oil prices continue to fall.

In addition to high wages and job opportunities, residents benefit from a relatively low cost of living. In 2013, the cost of housing required 26% of a typical household income, the second-lowest median annual affordability ratio nationwide. As in other states with a low cost of living, North Dakota also had a healthy infrastructure. Partly as a result, workers in the state benefited from an average commute time of less than 18 minutes, versus the national figure of nearly 26 minutes. It was the third lowest commute time in the country.

8. Virginia
> Real GDP growth, 2012-2013: 0.1% (3rd lowest)
> Average wages and salaries, 2013: $53,267 (10th highest)
> Pct. of adults with bachelor’s degree, 2013: 36.1% (6th highest)
> Patents issued to residents, 2013: 1,886 (21st highest)
> Projected working-age population growth, 2010-2020: 7.5% (21st highest)

Virginia’s large capacity for innovation, and high quality labor force helped make it the eighth best state for business. The Old Dominion State scored in the top 10 of states for the percentage of STEM jobs — jobs related to science, technology, engineering, or mathematics. More than 36% of adults in the state had completed at least a bachelor’s degree, which helped strengthen the labor force. The state also fared very well for its business-friendly regulatory environment, its relatively low poverty rate, and its comparatively low energy costs.

What held Virginia back from an even higher overall ranking was its weak infrastructure, which was ranked lowest among the states. Residents had one of the longest average commuting times of 27.7 minutes, and the state spent among the least per mile on road repair. Virginia also struggled with weak real GDP growth, 0.1% in 2013, third lowest in the country.

ALSO READ: The Worst Paying Jobs for Women

7. Colorado
> Real GDP growth, 2012-2013: 3.8% (6th highest)
> Average wages and salaries, 2013: $51,537 (11th highest)
> Pct. of adults with bachelor’s degree, 2013: 37.8% (2nd highest)
> Patents issued to residents, 2013: 2,793 (14th highest)
> Projected working-age population growth, 2010-2020: 8.6% (14th highest)

Colorado’s business climate is among the best in the country largely due to a strong labor market and an especially strong and innovative technology sector. These features are interwoven as a highly educated workforce is essential for innovation. Nearly 38% of adults in Colorado had at least a bachelor’s degree as of 2013, the second highest rate nationwide. As of that year, 14% of adults had completed a graduate or professional degree, a higher percentage than in all but a handful of states. The state’s population is projected to grow by 13.4% from 2010 through 2020 versus an estimated national growth rate of 7.1%, which also contributes to a strong labor market. Nearly 22% of all jobs in Colorado were STEM positions, the seventh highest proportion in the country.

6. Texas
> Real GDP growth, 2012-2013: 3.7% (8th highest)
> Average wages and salaries, 2013: $50,643 (13th highest)
> Pct. of adults with bachelor’s degree, 2013: 27.5% (23rd lowest)
> Patents issued to residents, 2013: 9,222 (2nd highest)
> Projected working-age population growth, 2010-2020: 16.1% (2nd highest)

Like a majority of the best states for business, Moody’s and Standard & Poor’s rated Texas’ credit among the best in the nation. The Lone Star State also led the states in the value of exported goods, which totalled nearly $1.9 trillion in 2012. There were also 386 public use airports, the most in the nation. Curiously, while Texas had the third most post-secondary schools in the nation at 420 in 2013, it actually had the second lowest percentage of adults who had completed at least high school, at 81.9%. Texas benefits considerably from its abundant natural resources. For example, the mining industry accounted for 11.1% of the state’s GDP in 2013, the sixth highest such contribution in the country. Other kinds of businesses do not do particularly well in Texas. The information, finance-insurance-real-estate, professional and business service industries contributed relatively little to the state’s GDP.

5. Delaware
> Real GDP growth, 2012-2013: 1.6% (20th lowest)
> Average wages and salaries, 2013: $51,093 (12th highest)
> Pct. of adults with bachelor’s degree, 2013: 29.8% (19th highest)
> Patents issued to residents, 2013: 453 (15th lowest)
> Projected working-age population growth, 2010-2020: 8.9% (15th lowest)
Based on several factors, Delaware’s regulatory climate was the most favorable nationwide for business. With high percentages of tech workers and strong independent investments, Delaware is also among the best states for innovation. More than 21% of all jobs in the state were STEM jobs, the eighth highest proportion in the country. The average venture capital investment of nearly $14.2 million per deal in 2013 — the second highest such figure nationwide — also reflects the high level of innovation and easy access to capital in the state.

Not so strong was Delaware’s infrastructure, which rated worse than most states. However, the consequence for businesses may be relatively small as businesses are concentrated in industries not especially dependent on transportation. For example, the financial industry, in which goods and services are relatively intangible, accounted for 42.1% of state GDP in 2013, the highest such contribution nationwide.

For the rest of the list, please go to 24/7WallStreet.com.

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