Whether you are a full time or part-time driver for Uber, Lyft or any other Rideshare Company, here are some tax tips you should know in order to avoid any unpleasant tax surprises in the future:
Self-employed or you are an employee:
For self-employed Rideshare Drivers, this means that they are responsible for their own taxes and especially payroll tax. When you are an employee, your employer deducts from your paycheck 7.65% FICA tax (Social security and Medicare Tax). In addition to any other withholdings, the employer is required to match the FICA percentage and pay both to the government. Being self-employed, you are considered an employee and an employer at the same time, and you will be responsible for paying the self-employed FICA taxes 15.3% (7.65% + 7.65%).
Income Tax monitoring and payments:
In addition to the 15.3% self-employed tax, Rideshare Drivers are responsible for calculating and paying income tax to the Federal, State, and for some cities, if that is applicable. You will be required to make quarterly payments to avoid any penalties and interest when filing your personal income tax
Forms 1099K and 1099 Misc:
As a self-employed individual, you will receive after year-end tax form 1099K, which includes the total amount received from customers. On the other hand, you may also receive another form called 1099 Misc., which represents the amount received directly from the Rideshare Company in the form of bonus, commission, or any other similar type of income. Adding both amounts received from the 1099K and 1099 Misc. will constitute the Gross Income that will be shown on the Schedule C when filing your 1040 Tax return.
Keeping track of mileage for business is crucial:
Employed Rideshare Drivers are required to file their income tax 1040 at year-end, and the business activities will be reflected on the Schedule C of the form 1040. After configuring the gross income mentioned in the previous points, Rideshare Drivers are eligible to deduct all expenses incurred while performing this service. One of the most critical types of expenses incurred is Auto Expense. The IRS provides two methods for calculating the Auto Expenses; The Standard Mileage Rate Method, and The Actual Auto Expense Method. Taxpayers can compare the two methods and choose the most beneficial approach to minimize their taxes. The most common factor of calculating the auto expense is the mileage used while performing their services, especially if we choose the Standard Rate Method for calculating the Auto Expense.
Standard Rate method of deductions for car expenses:
Standard rate method is the simplest one, if choosing this method all that the Rideshare Driver needs are to keep track of the amount of miles driven for business purposes, also they are required to figure out the numbers of miles driven outside the business. The total deduction of the Auto expenses will be the total number of miles driven for business purposes and the standard mileage rate (0.545/mile in 2018). They also need to provide the car make, model, and year produced, and the date and place of service, the following example will illustrate this method:
Assuming Mr. X works for UBER, and he has only one car, and he uses this car for personal and business purposes. The total mileage used in the year 2018 was 18575, out of which 11,252 used while performing services for UBER, which means the remaining 7,323 miles were used for personal purposes.
Mr. X is allowed to deduct 11,252 * 0.545 = $6,132.34 as Auto expenses in his schedule C in the form 1040 if he chooses the Standard mileage rate method.
Actual Expenses method of deduction for car expenses: Have the option to choose the Actual Auto Expenses method for reporting his auto expenses, all the auto expenses paid during a year will be deductible as auto expenses if he used his car solely for the Rideshare Driving, such as oil change, gas, maintenance, lease payments, property taxes, Uber fuel card fees, insurance, registration, and parking. If the car was partly used for personal purpose, he needs to calculate the percentage of total miles used for business out of the total mileage of the car and multiply that by the total expenses calculated for the Auto. The following example will illustrate this method:
Assuming that Mr. X from example incurred the following auto expenses during the year 2018:
• Lease payments $4,625
• Fuel $6,842
• Car Insurance $2,819
• Registration and taxes $329
• Maintenance $825
• Oil change $485
• Parking $218
• = $16,143
• percentage rate of using the car for business = 11,252/18,575 = 60.6%
• Actual Expenses for Auto in 2018 = 16,143*60.6% = $9,778.79
When comparing the two methods, it will be more beneficial for Mr. X to choose the Actual Rate Method than choosing the Standard Mileage Rate Method.
Other Deductions: The main deduction other than the auto expenses most probably will be the computer and phone expenses, such as the driving application used while driving. Also, Rideshare Drivers could deduct other costs incurred such as advertising, legal and professional (i.e., Accountants), office expenses, if he uses part of his home to manage his business, supplies (drinks, papers or any other supplies used while performing the service in the presence of the clients).
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