The gig economy is gaining traction, and many people are working for rideshare companies like Uber and Lyft. If you’re one of them, allow us to guide you through the world of tax filing:
Your Employment Status
Are you an employee or an independent contractor?
The answer most likely is the latter. You qualify as an independent contractor if you decide your work hours, arrange tools/equipment/vehicles yourself and aren’t trained/supervised by the company. However, if the situation is reversed, i.e., your company controls your work hours, trains you and provides equipment, you’re an employee.
It is advised that you consult an advanced tax filing service to better analyze and understand your employment status.
Your employment status indicates that you’re self-employed. Thus, for the ride-share company, you’re the owner of a separate business and they simply use your services to cater to customers. Since you’re an independent contractor, the payments you receive aren’t regular paychecks because no taxes have been taken out of them. For this reason, you’ve to take charge of federal and state income taxes, yourself. This also includes Social Security and Medicare. Try to set money aside for these taxes because they can easily reach 30% to 50% of your income.
In case you’re accepting ride-sharing fares more than occasionally, you may have to file quarterly estimated income taxes. Remember to do the following each tax-filing season:
- Report your self-employment income and expenses on Schedule C
- Fill Schedule SE for self-employment tax if your net income from the work is greater than $400
What to Deduct?
US tax filers who’re ride-share drivers can deduct money spent on the ride-sharing as business expenses. Let’s start with your car – here are your options to take a deduction for the business use of your car:
- Deduct the actual expenses of operating the vehicle for business, including gas, oil, repairs, insurance, maintenance, and depreciation or lease payments.
- Take the standard IRS mileage deduction. As of 2017, the rate is 53.5 cents per mile driven for business use.
Remember, you can only deduct business expenses and any expenses related to personal transportation aren’t deductible. The most important thing is to have concrete documentation to support your deduction claims. This includes receipts, mileage logs and any other documentation necessary. Other deductions can include:
- Commissions you pay to the ride-share company
- Cost bore for technology installed in your car
- Water, gum or snacks for passengers
- Tolls and parking fees
- Mobile phone expenses attributable to your ride-share work
What are 1099-K & 1099-MISC Forms?
Owing to your employment status, i.e., independent contractor, you’re likely to receive one or more 1099 forms.
This form is used to report payments for processing you customers’ payments. Within this form, Box 1a shows all the money you earned from rides provided, collected by the ride-share operator. However, this amount is more than the amount you actually received, because it includes the ride-share company’s commissions & other expenses. Ride-share operators provide a tax summary. This document is instrumental when translating your 1099-K information into some of the income and expenses to report on Schedule C. You should get this form if your ride-share operator processed more than 200 transactions and $20,000 in payments for you.
The 1099-MISC comes in handy when one has to report payments for other activities, such as referrals or non-driving-related bonuses. Further, this money is income to report on Schedule C. Note that you might not get this form if your non-driving income was less than $600.
Remember: You’re responsible for reporting and paying taxes on all the income you receive, irrespective of whether you get any of the above forms.
There, you’re ready to tackle your ride-sharing taxes. For further guidance, MyTaxFiler is here! Approach our low-cost tax filing service today – email us at firstname.lastname@example.org.