Photo Credit: Shutterstock.com
Joining the sharing economy as a provider of services – accommodation, transportation or whatever else the market calls for – gives you a chance to make money while being part of a “movement”. It sounds tremendously appealing, doesn’t it?
The companies being built around this new zeitgeist have different enough business models for it to be worth discussing them as if they do, indeed, fall into a different category from more traditional bastions of capitalism. To some, the appeal is the ability to feel like part of a community by pooling their resources: helping a neighbor or network member to cut the cost of everything from a pricey textbook to a baby stroller, or a ride from San Francisco to LA and an overnight stay in someone’s spare room. It’s a far cry from shopping on Amazon, and checking for plane fares on JetBlue and shopping around for hotel bargains on Priceline – somehow morepersonal.
But make no mistake: it’s a business. And you forget that at your peril, regardless of how you’re participating in the sharing economy.
Here’s the bottom line: none of the businesses that have sprung up to serve the sharing economy are 501c3 non-profit entities. Rather, they are corporations whose goal is to make a profit out of a much less formal sharing economy that already existed. Long before Airbnb was launched in 2008, a friend of mind traveled across Europe using a couch-surfing style network called Servus. I’ve formed some lasting friendships with people with a free Airbnb-style network, Hospitality Club, that offers hosts and guests the chance to review each other, Airbnb style. Airbnb has just formalized those arrangements, while ride-sharing companies like BlaBla Car have done the same with those old-fashioned ride share boards on walls or online – and build in a profit for the middleman.
But you don’t get to become one of the most valuable venture capital-based businesses in the world, as Airbnb has done, and to be worth an estimated $10bn (more than some hotel chains) if all you are is part of a “movement”. Nope, you have to have found a way to make being the middleman pay off very handsomely indeed – and that’s capitalism 101, not a movement.
All of which means that if you’re doing business with Airbnb – or Uber, or Parking Panda, or Liquid, or any of the other sharing economy enterprises springing up – you need to think of it in those terms, too.
First of all, while you may think of this as just generating a bit of extra income on the side – a way to pay off your student loans, to make your summer vacation pay for itself, to fund your weekends out with friends or to help save up to pay for a wedding or a downpayment for your house or car – the IRS won’t see it that way.
And if you think the IRS won’t ever know, well, let me disabuse you of that right now. You’ll fill out tax forms – and come January, you’ll get a 1099 form. Depending on the figure on it, you may end up kissing your expected refund goodbye, or facing an unexpected tax liability. If that 1099 form doesn’t show up? Don’t heave a sigh of relief and fail to report that income. If you think an unexpected tax liability is bad, getting on the wrong side of the IRS is exponentially worse.
The best idea of all is to talk to your accountant and ask for their input. At what point does sharing economy income change your tax picture by putting you in a higher tax bracket? Are there any additional writeoffs you should be aware of? Sure, this might cost you an hour of her time – but it could save you a lot of money down the road. And remember, you’re thinking of this as a business – just like the Airbnbs, Ubers and others who are quite happy to scoop up a percentage of what you collect.
Before you delve into the sharing economy, consider the regulations governing the micro-business that you’re choosing to enter and how they might affect you. In New York, for instance, it’s illegal to rent out a room in your apartment unless you’re there during the guest’s stay; generally, apartment rentals of under 30 days are illegal. (Depending on who you ask, this is an attempt either to make sure housing stock remains available to people who want to live in it, or a result of fierce lobbying by the hotel industry.) That doesn’t stop people from publicly violating both the law and the terms of their own leases – but Airbnb has made it crystal clear that they are on their own when it comes to sorting out those problems. So if you’ve got a landlord – or neighbors – who you know are just itching to bid you farewell for whatever reason, handing them an ironclad reason to do so might be foolhardy.
(Meanwhile, Airbnb is confronting some of these issues itself: this past week Barcelona slapped a fine on the company for violating laws that require rooms rented to tourists be registered with government authorities.)
What does set this new breed of business apart from its peers and predecessors is the emphasis on collaboration: hence, the alternative moniker of “collaborative consumption”. That’s a reason to assume that it’s less businesslike in nature (just as the Internet startups of yore were no less focused on making millions just because their founders wore khakis instead of suits). What it means for those of us hoping to make a much smaller amount of money alongside the capitalist creators of these businesses is that marketing may matter much more than before. Expectations are pretty low for customer “service” from traditional businesses; they’re higher from your peers in the sharing economy community who will be rating things like the cleanliness of your home and the promptness with which you respond to queries.
The “sharing economy” isn’t going anywhere, and the temptation to become a micro-entrepreneur is only going to grow. But if you’re on the verge of succumbing to temptation, ask yourself whether you’re ready to view this as a business. If not, you’re probably not ready to deal with the risks you’ll be taking onboard along with the much more widely touted rewards.