Whether you’re interested in becoming a rideshare driver or you already drive for Lyft or Uber, there’s one thing to always keep in mind—rideshare taxes. What many rideshare drivers overlook when starting their rideshare journey is what they’re responsible for paying to the government. Uber, Lyft, and most rideshare companies classify their drivers as independent contractors, not employees. What does this mean for you? This means Uber and Lyft won’t withhold taxes from your paycheck, which leaves you responsible for determining how much you owe the IRS in taxes. To ensure you comply with Uncle Sam’s demands, refer to this tax guide for Lyft and Uber drivers.
How Do Most Drivers File Their Taxes?
If you’re one of the 4.3 million ridesharing drivers, it’s important to be well-informed on your responsibilities as an independent self-employed business owner, also known as a sole proprietor. One such responsibility is filing your independent contractor taxes when the taxman comes knocking at your door. If you’re an Uber or Lyft driver, there are a few ways you can file your taxes:
- By Yourself: You can always file your taxes yourself. This guide will give you useful information about what you should know when filing your own taxes.
- Tax Preparation Service: Going to a tax professional will ensure you file all forms correctly. At CommunityTax, we offer tax preparation services to help you prepare an accurate tax return to minimize your tax bill.
1099-k vs 1099-Misc
Rideshare drivers for Uber or Lyft can earn an average of 20 U.S. dollars an hour depending on how many trips they complete. With the federal minimum wage set at 7.25 U.S. dollars an hour, ridesharing is an attractive industry for American workers who want to make a substantial living.
As with any job, however, you must contribute to the American tax system. Both Uber and Lyft consider themselves third-party payment processors, which is why they will send you either Form 1099-K or Form 1099-Misc. These forms are used alongside Schedule C, which allows you to keep track of your profits or losses from your business when filing taxes as an independent contractor.
Uber’s 1099 Forms
At the end of the year, Uber will send you either Form 1099-K or 1099-Misc in the mail. These forms are used to pay your Uber driver taxes for the year. The documents you should look out for from Uber are:
- Tax Summary: This is an unofficial document that breaks down your annual earnings and business-related expenses that are eligible for deduction. You will either receive your tax summary by mail or, if you opted for e-delivery, you can access your tax summary on your Partners Dashboard.
- Form 1099-K: You will receive this form by January 31st if you earned more than $20,000 in gross ride payments and gave at least 200 rides during the year.
- Form 1099-Misc: If you did not meet the above income/transaction requirements for Form 1099-K, you will most likely receive Form 1099-Misc by January 31st. To receive this form, you must have earned $600 or more in payments, including referrals, promotions, and bonuses.
If by chance you did not receive these documents from Uber, you most likely didn’t reach these income levels. However, this doesn’t mean you don’t have to report income less than these amounts. To get a breakdown of your Annual Summary, go to the Uber Driver Dashboard, then the “Driver” heading, and select “Tax Information.” Here, you’ll see your earnings to determine what your taxable income is.
Lyft’s 1099 Forms
Lyft operates in the same exact way when it comes to disbursing their 1099 Forms. To pay your Lyft driver taxes for the year, you’ll report your earnings from Form 1099-K (if you made over $20,000 and completed 200 rides), or from Form 1099-K (if you made over $600) on Schedule C. To access your Lyft driver tax information, visit the Lyft driver dashboard and click “Tax Information.” Here, you’ll find all of the information regarding your earnings.
Understanding Form 1099-K
When you first look over your Form 1099-K, you may notice something’s off. The number beside your gross ride receipts is probably much larger than the amount that’s been deposited into your bank. Because Uber and Lyft classify themselves as third-party payment processors, they have to include everything that was charged to your passengers, including fees, tolls, fares, etc. But, don’t worry! These expenses are deductible, so you don’t have to pay taxes on them. Both Lyft and Uber clearly outline these annual totals on their tax summary documents.
How to Report Your Rideshare Profits
Now that you have your 1099 Forms from Uber, Lyft, or any other ridesharing company, it’s time to report your profits on IRS Schedule C. Report your profits by:
- Calculating your business profits by subtracting your business expenses from your income. This number will go on Line 31 of Schedule C.
- Calculating your Social Security and Medicare contributions. If your business profits are greater than $400, you must fill out Schedule SE, which is the form for self-employment tax.
New Changes in 2018 / 2019
There are a few new changes this year that will impact your rideshare taxes. President Trump’s signage of the 2018 Tax Cuts and Jobs Act brought on numerous changes that affect both business and personal income taxes. For rideshare drivers, there are numerous changes that will affect you because of your treatment as an independent contractor. With the passage of this new act, pay particular attention to the following deductions and information described below.
Once you properly report your profits, it’s time to calculate your deductions. One of the biggest mistakes rideshare drivers make is not taking advantage of all the deductions they are eligible for. Small business tax deductions will greatly lower your overall taxable income, leaving more money in your pocket.
The New 20% Pass-Through Deduction
Section 199A of the Tax Cuts and Jobs Act aims to give small business owners, such as sole proprietors, partnerships, and S corporation,s a financial boost. As a rideshare driver, you fall under the category of a sole proprietorship, so you can enjoy the new 20 percent pass-through deduction outlined in this section. Under this section, non-corporate taxpayers can deduct up to 20 percent of their qualified business income (QBI), 20 percent of qualified real estate investments trust (REIT) dividends, and qualified publicly traded partnership (PTP) income.
So, what does this mean for you? It means if your income is less than $157,000 for the year, or $315,000 if you’re married filing jointly, you can get a deduction worth up to 20 percent of your profit. For example, if Joe was an Uber driver who made $50,000 in fares, he is eligible for the full 20 percent pass-through deduction because he falls below the threshold amount. His deduction amount will be 20 percent of $50,000, or $10,000, meaning he owes income tax on $40,000.
Deducting Your Mileage and Auto Expenses
Being an Uber or Lyft driver means you’re going to be spending a lot of money on your car. After all, your entire profession relies on it! With this being said, it’s important to take advantage of one of the largest tax deductions available to rideshare drivers: business use of your car. There are two ways you can calculate the business use of your car:
- The IRS issues a standard mileage rate that calculates the cost of operating an automobile for business. The costs of car insurance, car payments, maintenance, gas, and depreciation are all taken into account. For the 2019 tax year, the standard mileage rate is 58 cents per mileage driven.
For example, to calculate your deduction, multiply your total business miles by the IRS rate. If you drove 10,000 business miles, multiply that by .58, and you’ll get $5,800 (5000 x .58 = 5800). You can also include tolls and fees, so if you spent $200 in tolls and add this to 5,800, your deduction will be $6,000.
- The second option is keeping track of your mileage, car payments, car insurance, maintenance, gas, and depreciation yourself. This option will take more time and work to calculate and will sometimes result in a lower deduction. The IRS takes deductions very seriously, so if you ask yourself “do I have evidence for this deduction?” and the answer is, “no,” don’t include it on your taxes.
In the Lyft and Uber apps, they will detail some of your mileage, such as the length of your trip while transporting a passenger. However, you’re entitled to more mileage deductions, such as:
- Your mileage on the way to your first passenger
- Mileage between passengers
- Any other mileage related to business
To accurately record every mile you drive while on the clock, use a mileage tracking app on your phone. This will allow you to enter the mileage, date, where you went, and the purpose of your drive—all important information the IRS wants. Be sure to log this information every day, as the IRS prefers contemporaneous records. Along with your mileage, you’ll also have to keep receipts for your oil changes, car insurance, car payments, and any other service or maintenance repairs.
When you choose between deducting your mileage and deducting your actual car expenses, it’s important to never double-deduct. This means deducting your mileage and your gas. The IRS standard mileage rate takes gas into account, so if you end up deducting mileage and gas expenses, it will raise a major red flag with the IRS.
Deducting Mobile Phone Expenses
Mobile phone expenses are another deduction many rideshare drivers fail to take advantage of. Because Uber and Lyft use smartphones as their way of operating, drivers can deduct expenses relating to phone usage on their taxes. These expenses include the:
- Cost of the phone
- Cost of the service plan
- Accessories such as chargers, cases, and car mounts
It’s important to note that you can only deduct business expenses, not personal expenses. So, if you use your smartphone for both rideshare driving and personal use, you’ll have to separate the expenses. To make things easier, many Uber and Lyft drivers buy a separate phone and mobile plan so they can easily deduct these expenses on their tax forms.
Aside from your mileage and phone expenses, there are numerous other deductions that you can enjoy if you’re an Uber or Lyft driver. These deductions include:
- Snacks, beverages, and refreshments for customers
- Roadside assistance plans
- Car washes
- Music streaming memberships (e.g. Spotify, Apple Music)
- Trunk organizers
- Floor mats
- First aid kit
- Car tool kid
- Initial inspection cost
- Background check
- Uber and Lyft’s commission and fees
For additional expenses like these, you must prove to the IRS that these deductibles are “ordinary and necessary.” These expenses will all be recorded on Schedule C, line 27a and under Part V, titled “Other Expenses.”
Filing small business taxes may seem like a daunting task. However, if you’re a rideshare driver, following the steps in this guide will ensure you comply with all federal tax regulation while taking advantage of all the available deductions. Our CommunityTax professionals are here to help you lower your taxes and save the most money so you can make the most while ridesharing!