2018 Tax Tips for Uber and Lyft Drivers
In today’s burgeoning rideshare economy, there are many individuals who choose to earn additional part-time income (or their entire income) from companies such as Uber or Lyft. While rideshare companies offer flexible hours and great earnings potential, their drivers are classified as independent contractors. This means that they are responsible for paying and calculating their own taxes. This can be confusing and a little intimidating to people who are not familiar with the tax deductions that they can claim as a self-employed worker. This article should serve as a guide to assist drivers with what they can expect at tax time.
Uber, Lyft and Rideshare drivers generally receive two forms at the end of the year – a 1099-K and a 1099-MISC. The 1099-K reports the total amount received from passengers for the rides provided. The 1099-MISC reports any other income that received, including non-driving bonuses and referral income. Drivers will not receive a W-2 form that is typically given to regular employees. The 1099-K and 1099-MISC forms provide their base earnings for the year and is the starting point from where they can calculate their income, expenses and deductions.
The contractor should use Schedule C to calculate their total profits earned through providing their services as a driver. Schedule C allows the contractor to deduct specific business-related expenses, such as mileage, car payments, depreciation, maintenance of the car, insurance, cellular phone and phone plan expenses, and food and drinks for passengers. The 2017 Tax Cuts and Jobs Act (TCJA) introduced a new deduction for self-employed individuals, sole proprietorships, partnerships and S-Corporations to deduct an automatic 20% of business expenses if the business earns less than $ 157,500 for single filers or $315,000 for married filing jointly returns. Uber, Lyft and Rideshare drivers are eligible for this deduction if they earn less than the defined amounts. Let’s examine the potential deductions available to the contractor and their eligibility requirements.
Let’s examine the potential deductions available to the contractor and their eligibility requirements.
- Vehicle Expenses
To the Uber, Lyft or Rideshare driver, their vehicle is their business. Without the vehicle, they would not be able to work. Under Publication No. 510, the IRS allows the contractor to deduct either the Standard Mileage Rate ($0.54 per mile in 2018) or the actual vehicle expenses incurred during business use. The Standard Mileage Rate is easy to calculate (particularly since rideshare companies typically provide their drivers with the total mileage they incurred during passenger trips), but the driver should compare the expenses associated with both methods to ensure that they receive the best deduction.The IRS defines the business use of a car as a vehicle that is used in a trade or business. If it is used for personal purposes as well, the owner can deduct expenses associated with its business use only. Common actual vehicle expenses that a rideshare contractor incurs include:
- Gas expenses
- Vehicle Insurance policy
- Car or lease payments
- Oil changes and general maintenance
- Vehicle repair costs
- Depreciation on owned vehicles (not leased)
- Vehicle Title and Registration
If the car is driven for both personal and business reasons, then actual vehicle expenses can only be deducted by the percentage associated with business. Thus, if the car is driven 40% of the time for personal reasons and 60% for business, then 60% of the actual vehicle expenses could be included as a deduction for the year.
Vehicles that are owned by the contractor (not leased) are eligible for a depreciation deduction. If the vehicle is placed into service after October 1, 2017 for business use, it is eligible for 100% bonus depreciation during its first year of service, up to a maximum of $10,000. The depreciation limits vary by size of the vehicle. Passenger cars of a weight greater than 6,000 pounds are not subject to depreciation limits. However, there is an additional depreciation allowance of $8,000 that can be claimed for first-year vehicles weighing less than 6,000 pounds. It is important to remember that the depreciation deduction is only available for the percentage of time that the contractor used the vehicle for business purposes.
Calculating actual vehicle expenses requires much more time and effort than simply calculating the Standard Mileage Rate, but doing so can save significant monies in taxes, especially if the contractor has a vehicle that can depreciates significantly or incurs significant maintenance costs. Proper documentation including a mileage log and receipts for expenses incurred should be kept in the case of an audit. Use the Hurdlr App to make tracking these expenses easy!
- Cellular Phone Expenses
The driver may deduct the cost of their phone and their phone plan service based on the percentage it is used for rideshare. Thus, if the contractor uses the phone 60% of the time for ridesharing and 40% for personal use, they may deduct 60% of the expense on Schedule C of their taxes. It is important to ensure documentation of relevant phone expenses is retained (including receipts).
- Food and Drinks for Passengers
If the contractor provides food or drinks for their passengers during their ride, 50% of the expense may be deducted on Schedule C. However, proper documentation of the expense should be kept. The Tax Cuts and Jobs Act eliminated this deduction if it is in relation to entertainment, but it is still a valid deduction for rideshare contractors if it is not frivolous and is not used for entertainment purposes.
- Rideshare Specific Vehicle Accessories
If used for business purposes, window decals and in-car signs can sometimes be deductible. Many drivers use after-market Uber/Lyft lights to make their vehicle more easily noticed by passengers, as well as signs in the car that tell the passenger what they can expect, as well as rules that the driver may have for their vehicle.
- Parking Fees / Tolls
Parking fees and toll expenses incurred while ridesharing may be deducted in full on Schedule C. Proper documentation and receipts should be saved.
- Qualified Business Income
The Tax Cuts and Jobs Act provided an additional deduction for self-employed individuals, sole proprietors, partnerships and S-Corps to deduct 20% of their taxable income. This is available to single filers if their income is less than $157,500, or $315,000 for married filing jointly filers. This deduction is available to rideshare contractors and they should take advantage of it if they are eligible. For compliance purposes, it is recommended that the driver register with his or her city and state as a business owner (most cities and states require this of self-employed individuals who provide services to the public, but it does vary by location).
It is important to remember that Uber, Lyft and Rideshare contractors are self-employed, and are thus subject to self-employment tax (tax for Medicare and Social Security). This tax rate is 15.3% of the total earnings after expenses, up to $128,400. If the contractor earns more than $128,400, an additional 2.9% is required on further earnings. Half of the self-employment tax is deductible from adjusted gross income on Schedule 1040.
As an independent contractor for Uber, Lyft or other rideshare platforms, you are eligible for many tax-saving benefits. However, it is important to document the expenses you claim and retain them in case you are ever selected for an audit.
This article is for informational purposes only and ‘The Rideshare Guru’ does not make any guarantees to its accuracy as each individual’s tax situation is unique. We recommend that you hire a tax professional if you are uncertain of how to properly file your taxes as a rideshare driver.
Virginia Anderson is a Certified Public Accountant in the state of VA with with 15 years of experience in finance and accounting.