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Did you drive for Uber, Lyft, Amazon Flex, or another rideshare/delivery company in 2017?
If so, it’s crucial to understand the tax impact of rideshare and delivery driving. This will help you minimize your tax liability. As we approach the April 15, 2018 deadline for the individual income tax returns, it’s important to note all the tax deductions rideshare and delivery drivers can deduct in order to maximize their refund. This is true whether you drove full-time, or just part-time for some extra income.
As you’re probably aware, as a rideshare driver, you are a self-employed independent contractor. You are not a direct employee of Uber or Lyft. As a self-employed contractor, you will deal with different tax impacts than if you were an employee of a company. Accurate record keeping is very important. It will make it easier to allocate deductible business expenses when it is time to prepare and file your tax return.
Expense Tracking And Tax Deduction Apps For Uber & Lyft Drivers
Here are the best available expense tracking options for rideshare drivers:
- QuickBooks Self Employed – Mileage & Expense Tracking
- Stride Tax – Mileage & Expense Tracking
- Mile IQ – Mileage Tracking
Uber & Lyft: Self-Employed vs. Employee
It’s important to understand the differences between a company hiring an individual as a self-employed contractor vs. an employee.
Employees typically work for a company for an indefinite period of time and receive benefits from the company. Additionally, employees receive a Form W-2 at the end of the tax year which summarizes all the income and taxes withheld during the year. Self-employment tax, which consists of social security and Medicare tax, also differs between an employee and self-employed individual. As an employee, the employer splits the self-employment tax costs 50/50. As a business owner, or self-employed individual, you will pay both parts of this tax (discussed further in this article).
Self-employed contractors are generally hired for a certain period of time and the relationship can be terminated at any time. Instead of a Form W-2, self-employed rideshare drivers receive a Form 1099 that summarizes the income earned during the year. Typically, rideshare drivers will receive a Form 1099-K or Form 1099-Misc, or both.
Tax Impacts of being self-employed
There are several tax impacts that differ from being an employee vs self-employed. Self-employed contractors are required to:
- Pay their own taxes (federal, state, social security, Medicare, etc.). This differs to being employed by a company which withholds these tax payments from your paychecks.
- Pay 100% of social security and Medicare taxes. As an employee, your employer pays 50% of these taxes. If self-employed, you to pay the full portion of these taxes.
- File a Schedule C, Profit or Loss from Business, with the Federal Income Tax Return Form 1040. Being self-employed is similar to owning a business. The Schedule C will report all the income and deductible business expenses to calculate how much the income you earn is actually taxable.
One of the major benefits of being self-employed is that there are a wide variety of expenses that you can deduct from your income. For many of your vehicle expenses, there are two methods that you can choose from when calculating the deduction: the standard mileage rate deduction or the actual expense method.
Additionally, there any other business expenses that you can deduct from your income, regardless of whether you are using the standard mileage rate deduction, or the actual expense method.
Standard Mileage Rate
The standard mileage rate deduction is the method by which the IRS allows a set deduction amount per mile driven for business. The standard mile deduction rate for 2017 is $0.535 cents per business mile (2018 rate is $0.545 per business mile). This means for each business mile driven, you get a $0.535 deduction for tax purposes. Another way to think about it is that for every 1,000 business miles you drive, you get a $535 tax deduction!
The miles that qualify for business tax standard rate deduction include:
- fare mileage
- mileage driven between pickups
- Mileage driven to the gas station or store to purchase business supplies.
Using this method will disqualify you from deducting any of the expenses mentioned below in the actual expense method section. The standard mileage rate deduction method is often most beneficial for taxpayers since it usually results in a higher tax deduction.
The standard mileage rate deduction is reported on the Schedule C of the Form 1040 in line 44.
Actual expense method
If you do not choose to use the standard mileage method, you can deduct actual expenses of operating your vehicle for your rideshare business. Actual expenses that can be deducted include: depreciation, lease payments, registration and license fees, insurance, gas, oil, repairs and maintenance, tires and any other direct expenses with the vehicle. If the vehicle is used for business and personal reasons, the taxpayer will need to allocate these costs based on the miles driven for business and personal. Proper documentation and record keeping is helpful to get the most accurate deduction.
Some deductions are available to taxpayers no matter if the actual expense or standard rate mileage method is used. Expenses such as Uber fees, tolls, parking fees, airport fees, roadside assistance fees, and supplies (such as refreshments and water bottles) are tax deductible.
If some or all of your phone bill is business related, you can deduct the amount of the phone plan and any activation fee on Schedule C of the Form 1040. Like all expenses, if the phone is used for business and personal uses, only the percentage allocated for business use can be deducted.
For more detailed information on tax deductions, be sure to check out:
Unfortunately, parking tickets or other traffic/driving violation tickets are not tax deductible. Since neither Uber or Lyft reimburses the driver for these incidents, you pretty much have to pay (or fight) the ticket, and you cannot take a tax deduction for the cost of the ticket.
A Form 1099 is an information return that is filed with the IRS and also sent to taxpayers who earn different forms of income. Income earned from driving for a rideshare service is reported on a Form 1099 and should be used to complete the individual income tax return.
If you receive a Form 1099-K, Box 1 consists of the gross receipts from all rides for which you were paid in tax year 2017. This box does not include any service fees or other fees that may have been incurred during business driving, which will be reported as deductible expenses.
If you receive a Form 1099-MISC, you have likely earned a driving bonus, referral bonus or some other miscellaneous income that was not earned for driving services. Box 7 of the Form 1099-MISC will typically provide the amount for this income.
If you have not received a Form 1099, perhaps the income you earned was too low to qualify the need to file a Form 1099. You can find most of the income information needed to compete your tax return on the driver profile section of the rideshare service website you are contracted with.
Completing a Schedule C
You are self employed and driving for Uber, Lyft, or another rideshare or delivery service. So, you will likely need to complete Schedule C with your Individual Income Tax Return Form 1040. This schedule is a part of the full individual tax return and will report any income and deductible expenses for your self-employed business.
Part I of Schedule C will summarize all gross receipts. This information will come from the Form 1099 that will be provided from Uber, Lyft or another rideshare service. Since driving Uber or Lyft does not involve product costs, there should not be any cost of goods sold in this section.
Part II should be completed with all the deductible business expenses explained above. Any expenses that can be split between personal and business should be allocated according to the percentage of business vs personal miles driven in the tax year.
As an employee of a company, the employer and the employee split the cost of self-employment tax so each pays 50% of the total portion due for each employee. Self-employment tax consists of Social Security and Medicare taxes. You may know them as the FICA Tax (Federal Insurance Contributions Act).
As a rideshare driver, the taxpayer is considered to be self-employed, which required reporting and paying the full FICA Tax due for the year. Drivers who earn less than $400 will not need to file or pay FICA taxes on their earnings.
The 2017 Self-Employment Tax Rates are as follows:
2017 FICA Rate
- 15.3% on first $127,200 of net income.
- 2.9% on income greater than $127,200
The 15.3% FICA Tax Rate is calculated as follows:
- Social Security Tax Rate – 12.4%
- Medicare Tax Rate – 2.9%
If you are new to driving for Uber, Lyft or any other rideshare service, you should understand all the tax implications that come with being self-employed. Many taxpayers may not have filed a Schedule C on their Form 1040 and do not know all the business deductions they are entitled to.
Keeping complete and accurate records will make it a lot simpler to allocate expenses between personal and business. It can save you many hours when it comes time to file your tax return. So, be sure to download a mobile app like Quickbooks Self-Employed, MileIQ, or Stride. These apps can track and provide a report of the mileage that you drove for personal and business use. You can also use Quickbooks or Stride to help allocate certain expenses for business purposes. This will help reduce your taxable income on your Schedule C, which will lower your taxes or increase your tax refund.