A growing number of people across the country are bringing in extra income as drivers for ridesharing apps like Uber or Lyft. If you’re driving full-time or part-time and bringing in an income from one of these apps, it’s important to understand how to file your taxes. There are some key differences from the income tax filings that you may have made in the past as a regular, W-2 employee. Here are some tips to help you keep on top of your Uber taxes and Lyft taxes for 2020 and beyond.
You Are an Independent Contractor
When you are a regular employee, you receive a W-2 form, and your taxes are typically deducted at the time you get paid.
On the other hand, if you are an independent contractor, you receive 1099 forms, and you will need to handle paying your own taxes to the IRS.
In general, rideshare drivers are classified as independent contractors. There have been several lawsuits about how Uber and Lyft classify drivers, but for now, remember that you are considered an independent contractor when it is time to pay your taxes.
Like other independent contractors and freelance workers, you will receive 1099 forms from Uber, Lyft or other rideshare apps.
You can access the information you need on the Driver Dashboard inside your app, as well as request an official 1099 form from the company.
In general, you will receive a Form 1099-K in the mail if you had more than 200 transactions (rides, in the case of ridesharing companies) and generated over $20,000 in customer payments for rides.
In most cases, even if you had fewer rides, you will still receive a 1099-K from your rideshare company.
If you made more than $600 in non-driving income like bonuses, referral fees and other awards, you may also receive a 1099-MISC to cover this income. It is important to understand that you need to report your income even if it does not rise to the level of receiving a 1099 form.
You still need to pay taxes on that income, so go into your driver dashboard or app settings and download your income details.
The annual tax summary available from your rideshare company will include items like:
- Total miles
- Vehicle operating expenses
- Gross earning from rides
- Non-ride, non-driving income
In most cases, the 1099 forms will report the total costs that customers paid, including fees that were taken out by Uber or Lyft. You still need to report this amount as income, but you can deduct the fees from your Uber or Lyft taxes as a business expense.
Understanding Self-Employment Taxes
If you’ve worked as a traditional employee in the past, you may not be familiar with self-employment taxes. When you drive as an independent contractor, you have to pay both income taxes and self-employment taxes.
When you make more than $400 annually in self-employment income, you have to cover your own Social Security and Medicare taxes.
As an employee, a portion of these taxes are deducted from your paycheck each pay period, and the employer covers the other portion.
If you are self-employed, you cover that self-employment tax bill yourself.
Self-employment taxes for 2019 come in at a flat rate of 15.3% for the first 92.35% of your money from self-employment.
Before calculating your self-employment taxes, deduct your business expenses. Remember, even if you owe nothing at all in income taxes, you are still responsible for paying your self-employment taxes.
What About Income Taxes?
As an independent contractor, you still have to pay regular income taxes as well as the self-employment tax. Unlike self-employment taxes, these have income taxes will have income-based tax rates.
You will use the same IRS Form 1040 to calculate your income taxes, and your rate will be based on the standard IRS marginal tax rates. Just like being an employee, you only have to pay income taxes on the amounts you earn above the standard deduction.
As a reminder, the standard deduction is a, ahem, standard amount that the IRS designates as an option for deductions every tax year. When doing your taxes, you can opt to utilize the standard deduction instead of calculating all of your tax deductions yourself. You can read more on this here.
For 2019, the standard deduction was $12,200 for people filing as single, and in 2020, that deduction will rise to $12,400.
To calculate your business income, you need to assess both your profits and your expenses, as if your rideshare driving was its own small business.
There are specific tax deductions that are particularly important when paying Lyft or Uber taxes because you rely so heavily on the use of your car.
Tax Deductions for Uber and Lyft Drivers
Remember, the IRS considers you a business owner as a rideshare driver.
This means that you can deduct your business expenses in order to determine your actual income from ridesharing.
Some major business expenses come with driving for Uber and Lyft. Make sure to keep proper documentation of your miles driven and other expenses in order to help you get the tax savings you deserve.
As noted earlier, your 1099-K form will include full payments made by customers without deducting the Uber and Lyft service fees that you did not receive. You can deduct these fees as a business expense that you paid to the platform to make sure that you are not being taxed on earnings that you never received.
In addition to deducting your rideshare app fees, you can also deduct mileage expenses or actual car expenses. You can claim either the IRS’ standard mileage rate deduction or actual expenses for maintaining and fueling your car, but you cannot claim both.
In 2019, the IRS set its standard mileage reimbursement rate as $.58 per mile. You can claim this amount for every mile that you drove for business purposes during the year. In most cases, the standard mileage deduction is a better choice with higher tax savings for drivers, although you may want to work it out for yourself.
If you do not take the standard mileage deduction, you can claim the following actual expenses for operating your car for business:
- Gas and oil
- Maintenance costs
- Repair bills
- Car insurance
- Lease payments or depreciation
To calculate your mileage deduction, multiply the miles you drove for business by 58 cents. This does not just include the miles that you drove customers; you can also count miles driven to go pick passengers up or moving from one ride request to another.
Make sure to record these miles carefully, as the IRS could deny mileage claims that you can’t back up.
Whether you use the standard mileage deduction or claim actual car expense, you can still claim parking fees related to your work for Lyft or Uber as well as tolls that were not paid by the passenger as business expenses.
There are several other business expenses you may also be able to claim as a rideshare driver. These include the following:
- Mobile phone charges to use the app, including chargers, dashboard mounting systems and data plans
- Water or snacks provided to passengers
- Electronic toll payment devices
- Car items like tool kits, first aid kits, tire maintenance devices, battery jumping equipment, flares and floor mats
- Business insurance, taxes and license fees
- Roadside assistance subscriptions
You may also be able to claim a qualified business income (QBI) deduction as a sole proprietor running your own business (driving for Uber or Lyft). This may enable you to deduct an amount up to 20% of your earnings as an independent contractor.
Filling Out Your Tax Return
You’ll use the typical IRS Form 1040 to report your earnings.
On Schedule C, you’ll manage your profit or earnings, and expenses or losses, including all of your business deductions above.
On Schedule 1, you’ll report the final amount for your business income, even if it was your only source of earnings for the year. Finally, you can take your regular standardized or itemized deductions on your Form 1040 for all of your income for the year.
As an independent contractor, you’ll pay the taxes you owe directly to the IRS. You can pay these taxes quarterly to avoid a big tax bill at year-end and meet IRS regulations.
We know that Lyft and Uber taxes can be complicated. At Picnic Tax, we connect you to experienced online accountants who can make sure your tax returns are complete, claiming all of the deductions for which you are eligible.
Just upload your documentation, and your accountant will complete your rideshare tax returns. Contact us today to find out more about how we can help you.