Have you ever taken a Uber, Lyft, or Sidecar? Chances are you have or at least know someone who has. In fact, you might have even dabbled as a driver behind the wheel of a Uber. Rideshare driving has become one of the most popular freelance jobs today. It’s readily available and easy to do in your spare time. This post covers some important tax information for drivers
Rideshare driving has picked up in popularity only in the past year or so but today, many independent contractors consider themselves one. Many new drivers are now faced with how to handle taxes on their income. If you’re in that boat, take a look at this guide to help you understand the basics of taxes for ridesharing drivers:
Forms & Documents You Need
As an independent contractor, you should familiarize yourself with the 1099. You should receive a 1099 from any employer you’ve earned $600 or more from by January 31st. If you don’t, you can still report that income on your Schedule C. You can also report income from employers you earned less than $600 from on your schedule C.
1099s come in many forms. The most common 1099 form is the 1099-MISC or 1099 Miscellaneous. As an independent contractor, this the form you will most likely be receiving and will usually cover most kinds of freelance income. To learn more about other types of 1099s, click here.
Understanding Business Expenses
There are many business expenses you can write off. This will lower your taxable income and in turn, save you money. For ridesharing drivers, here are some common expenses:
- Car: As a ridesharing driver, your car expenses are probably your biggest. Here are two ways you can write off this expense:
- Standard mileage rate: This is the most common and easiest method to use. Here you multiply your total business mileage by the IRS rate (which was $.56 in 2014). This covers gas, insurance, maintenance, repairs, lease payments and depreciation.
- Actual costs method: Using this method, you will calculate the actual costs to you relating to all your car expenses. This is more time consuming and easy to make mistakes. In both methods, you can write-off tolls and parking expenses related to business
- Cell Phone: Most ridesharing drivers need a cell phone to utilize apps to connect with passengers. You can write off the business portion of your cell phone bill, including talk and data.
- Food: While you can’t write off lunch for yourself, you can write off a portion of the food you’ve purchased for passengers such as bottled water and snacks. You can write off 50% of this expense.
What Else You Need To Know
The IRS requires that business expenses be ‘ordinary and necessary’. You can use your judgement when listing your expenses. For example, many rideshare drivers have a subscription to a music platform like Spotify and Pandora. While it’s a nice-to-have, it isn’t necessary to your business and doesn’t qualify as a business expense.
To learn more about what can expense, visit the IRS website here.