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2019 Tax Tips for Uber and Lyft Drivers
Many people are turning to rideshare companies, such as Uber or Lyft, to earn extra money.
Rideshare driving can be a full-time gig for motivated drivers. One of the reasons why this work is so attractive is that you do not work for the rideshare company. Instead, you are self-employed, and you contract out your services to the rideshare company.
Rideshare drivers are categorized as independent contractors for tax purposes.
What is an independent contractor?
Independent contractors are not employees. As a result, no taxes are withheld for federal or state income tax payments. Instead of receiving a W-2, contractors are provided 1099 forms, which list the gross amount of pay without tax withholding.
Most independent contractors must submit estimated tax payments each quarter. You report the estimated tax payments on your tax return when you calculate your tax liability. It’s important to plan for the tax payments you must submit, so that you can pay your entire tax bill on time.
Your tax filings will be different as an independent contractor. Contractors post their income and expenses to Schedule C on their personal tax return (Form 1040).
If you receive a 1099 as a contractor, you report the gross pay as income on Schedule C, and subtract your business expenses to calculate your profit or loss. The profit or loss total is added to your other income (spouse’s W-2, interest, dividends) on Form 1040.
A great way to lower your tax bill is to get every deduction that you are legally entitled to as a small business owner. There are many deductions that drivers may not use when filing their taxes.
Here are some tax forms that most independent contractors must complete:
| Form | Purpose |
|---|---|
|
Schedule C, Profit or Loss from Business |
This form summarizes all of your business income and expenses and calculates the taxable profit or loss. |
|
Schedule SE, Self Employment Tax |
Schedule SE is used to determine the Social Security and Medicare tax that you owe, based on your profit on Schedule C. Independent contractors are responsible for paying both the employee and employer share of this tax, which is currently 15.3%. |
|
Schedule 1, Additional Income and Adjustments to Income |
Remember the tax you paid on Schedule SE? Good news! You get to expense 50% of the self-employment tax on this schedule. You may also qualify to take the self-employed health insurance deduction if your primary source of income is from self-employment earnings AND your purchase your health insurance solely on your own. |
Understanding Your Tax Forms
How Form 1099-MISC works
- Other Income, Box 3: This amount is the total fees your received from the rideshare company. Record this amount as gross receipts on Part 1, line 1 of Schedule C on your personal tax return. The box 3 amount is reported to the IRS.
- Account Number: The account that the rideshare company has assigned to you. This number allows the company to track the amount paid to each driver.
- State/ Payer’s state number: The rideshare company is also required to report fees to your state, so that the state can verify that state income taxes are paid on your earnings. This box lists a number used by the rideshare company for your state.
The amounts on Form 1099-MISC are reported to the IRS, and to your state’s Department of Revenue. If you don’t include the 1099 information on your federal and state tax returns, you will have to file amended returns and pay taxes on your earnings.
The IRS provides two ways to deduct your mileage expenses: the actual expense method, or the standard mileage rate method.
Calculate the deduction using both methods, and use the method that gives you the higher deduction amount. There are several rules that prevent you from changing methods from one year to the next:
- Owned car: If you own a car and want to use the standard mileage method, you must start using the method in the first year that you own the car. In later years, you can choose to use either method.
- Leased car: If a driver leases a car and starts using the standard mileage method, the driver must use the standard mileage method for the entire period of the lease.
Your car’s depreciation expense may be a big factor in your mileage expense calculation. Use this calculator to analyze the impact of depreciation, and to determine which method you should choose.
Below is a broad overview of what is included in each type of deduction:
| Actual Expenses | Standard Mileage | |
|---|---|---|
|
GENERAL DESCRIPTION |
All your actual expenses related to your rideshare income. Examples are:
|
For 2019, the Standard Mileage Rate is 58 cents per mile for each mile driven related to your rideshare work. You can also deduct the cost of tolls and parking. |
|
ADVANTAGE |
No expense is left unaccounted for. |
Limited recordkeeping, most of which is done by the rideshare company. |
|
DISADVANTAGE |
Requires a higher degree of recordkeeping to keep track of the expenses, and backup documentation for these expenses if you are ever audited. |
You may be cheating yourself out of expenses and therefore overpaying taxes, especially if your vehicle is driven primarily for the rideshare business and has high insurance and repair expenses during the year. |
|
RULE OF THUMB |
If your vehicle is driven more than 75% for your rideshare business and has a high insurance and repair expense during the year, this may be the way to go. |
If you are terrible at recordkeeping or drive on a very limited basis, this may be the way to go. |
Below is a list of other expenses you may be eligible to deduct. This is a partial list of the most common expenses, and there may be other costs that apply to you:
| Expense | Description |
|---|---|
|
GENERAL LIABILITY INSURANCE |
You may want to purchase a general liability insurance policy to address risks that are not covered by auto insurance. |
|
LEGAL & PROFESSIONAL FEES |
Income tax preparation, accounting, and attorney fees. |
|
OFFICE EXPENSES |
Office supplies |
|
RENT OR LEASE EXPENSE |
Garage rental to store your vehicle when not in use. |
|
MEALS |
50% of snacks and beverages you provide to your customers. (This does not include your own meals while working.) |
|
CELL PHONE |
The business use portion of the cell phone used for your business. i.e. If you use your cell phone 75% for rideshare driving, deduct 75% of the monthly bill for your phone. |
|
Window decals, lights and signage that identifies you as a driver for a specific company. |
|
|
QUALIFIED BUSINESS INCOME DEDUCTION |
You may be able to deduct up to 20% of your taxable income related to your rideshare business. This deduction is complicated, and you should consult with a CPA to determine if the deduction applies to you. |
The mileage deduction may be your largest expense, and it’s important to understand the type of mileage you can deduct:
| Expense | Description |
|---|---|
|
MILEAGE TO/FROM WHERE YOU BEGIN AND END YOUR RIDESHARE DAY |
Assume that you get into your vehicle and decide that you’re going to drive to an airport or busy city area where lots of people need rides, and your income potential is much higher. You complete all of your rides and the drive home. It’s a great idea to start out where the money is. Just be aware if you are taking the standard mileage deduction, that mileage may not have been calculated. While many of the rideshare apps calculate the mileage from the time you turn on and off the app, not all do. Additionally, if you choose to not turn on the app until you arrive at your starting point and turn off the app after you complete your last ride, some deductible mileage is not being counted. You’re losing a portion of your mileage deduction if you don’t track the off-app business related miles. |
|
SELF EMPLOYED HEALTH INSURANCE DEDUCTION |
If you are primarily self-employed and purchase your own health insurance, you may be eligible to take a portion of the health insurance premiums as a deduction against your income. |
Finally, you need to understand the tax forms that the rideshare company will be providing you with, and what they mean.
Your annual rideshare statement is another helpful document you can use to complete an accurate tax return, but your official tax forms should be your primary source of information.
| Expense | Description | |
|---|---|---|
|
RIDESHARE COMPANY’S YEAR END SUMMARY |
This is an unofficial document produced by the rideshare company to assist you with completing your taxes. The tax summary will have a breakdown of your annual earnings and business related expenses that the rideshare company tracks. This summary will not include other expenses, such as off-line mileage, insurance expenses, supplies, and auto-related expenses. |
|
 |
Form 1099-misc is an IRS form that reflects the total of referral, promotion, and other payments for the year. Only drivers/deliverers who received $600 or more in payments during the year will receive this form. NOTE: If you made less than $600, you still need to report your income and expenses. Refer to your rideshare company’s tax summary to obtain the information that you should report. |
|
 |
Form 1099-k is an IRS form which includes all on-trip gross earnings. Beginning in 2018, Uber & Lyft only send these to drivers who earned more than $20,000 in passenger/delivery payments AND provided at least 200 rides/deliveries during the year. |
|
Keep organized records
Many rideshare drivers lose valuable tax deductions, due to poor recordkeeping.
Make the effort to keep your records organized throughout the year. Use technology tools and track your mileage accurately. Keep receipts in a specific place in your car, and file the receipts at home each day. You can also use an app like Hurdlr, which eliminates the need to track everything manually. Hurdlr has a free version and a paid version. The paid version is nice, but the free version is still very helpful and tracks your expenses automatically.
These efforts will pay off, when you’re able to deduct all of the expenses and reduce your tax liability.
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. We may get a referral fee to services or products linked to from this site.
Michael A. Mellace, CPA is a Certified Public Accountant in the State of New Jersey, and the President and Chief Executive Officer of Pink Harbor, CPA. Mike has over 25 years in income tax preparation, accounting and business consulting. Mike is a member of the American Institute of Certified Public Accountants (AICPA), a Board of Director on the Williamstown, NJ Chamber of Commerce and a Rotarian.
