Tax time will be here before you know it and because of Covid-19, there are a lot of new ride-share drivers that have been forced to supplement their income with ride-share driving. A lot of new drivers are going to have to do their taxes as an independent contractor for the first time which can be scary and leave people feeling like they do not know where to start.
That is why we have put together a full ride-share tax guide including the best place to go to get your ride-share taxes done, the documents you will need and where to find them, as well as a run down on exactly how to do your ride-share taxes. Do not get discouraged. Follow the guide below and you might even receive money back on your taxes. Good Luck!
RideShare Tax Season Guide
(*FIRST OFF: Driving for Uber/Lyft means you are an independent contractor and responsible for your own finances. You are responsible for putting money away every month to cover your owed taxes come tax time. Uber and Lyft do not deduct owed taxes from your payouts. So what I do, for example, is If my goal is to make $100 everyday that I drive, then I always make sure that once I get to $100, I do 1-2 more trips to get to $105-110 and put that extra $5-10 aside for taxes.)
Where to start:
Being a rideshare driver gives you access to certain deals on tax software. I use TurboTax every year because it is through Uber and the annual deal they offer which includes, depending on your status, free federal and state. The most you can spend, again, depending on your status, is about $60 total and that $60 can be deducted from your return amount.
The important thing to remember is that the deal is only available until February 20th. So, you have to be ready to do your taxes early in the year so you can take advantage of this great offer and service that Uber and TurboTax have partnered together to provide for their drivers. Plus, then you can get your taxes out of the way and not have to stress about them the rest of the year.
How do you gain access to the Uber/TurboTax offer:
First, open your Uber Driver app. --->Next click on the hamburger icon in the upper left hand corner of the home screen. --->A drop down menu will appear. --->Scroll down and click on “Uber Pro.” --->You will be directed to your Uber Pro dashboard. --->Scroll down and click on “TurboTax Self-Employed discounts.” --->Scroll to the bottom and click “Access Offer.” --->you will be directed to a login page. --->login using your Uber account information to connect to the TurboTax software.
Next Step: (Understanding your Income/Expense statement)
Before you can begin the tax return process through TurboTax, you will need to access your income/expense statement for the year that Uber provides for you.
You’re probably accustomed to receiving a W-2 from your employer to document your earnings. If you have a “day job” in addition to your ridesharing gig, you should receive a W-2 from your regular employer and file it with your tax return as usual. Uber, however, will not send you a W-2. Instead, it will report your earnings on two other forms:
1. 1099-K - (For your driving services)
2. 1099-MISC - (For any other income you are paid such as bonuses or referral fees)
*It is important to note that you will only receive these two documents from Uber/Lyft if you made over $20,000 in the year or if you received more than 200 payments. So, if you did not receive these documents, do not get frustrated or confused, it is because you did not make more than $20,000 in the fiscal year. Instead Uber/Lyft will provide you with what they call a “Yearly Summary” which will act as your 1099-K/1099-MISC.
So, where do I find these documents: (1099-K, 1099-MISC, OR Yearly Summary)?
To gain access to these documents you need to go to----> drivers.uber.com
You will login using your same login information that you use to login to your Uber driver account in the driver app. Once you sign in, you will see an option bar at the top of the page. Click on “Tax Information” and you will be directed to the documents you will need to begin your tax refund.
*It is Important to note that:
Uber drivers receiving a 1099-K for the first time often are surprised to see that the income reported is greater than the amount they actually received in payment.
That’s because IRS tax rules require Uber to report the full amount the customer paid, including the company’s commission and other fees.
Form 1099-K refers to this as the “gross amount of payment card/third party network transactions.”
Don’t worry. You can deduct the extra amounts.
In fact, Uber makes it easy to deduct the correct amounts by providing a “1099-K Breakdown” on its tax summary page. This gives you the totals for:
Tolls
Split fares and miscellaneous fares
Safe ride fees
Airport and city fees
Black car fund
Sales tax
Booking fees
And other taxes paid over the course of the year, all of which can usually be deducted from your business income.
The tax summary also provides annual amounts for “other items” included in the 1099-K gross amount, including the Uber fee and your device subscription amount.
Here is an example of what your “Yearly Summary” will look like:
*This particular individual made a GrossEarning of $37,674.70 for the year. This includes both the drivers payout as well as Uber’s commission. The Net Payout of $25,043.75 is the actual amount that the driver received in payment or direct deposit. The Expenses, Fees and Tax of $12,630.956 is basically the difference between the two. There will be a second table that will break down your entire expense report.
Here is an example of what your “Expenses” table will look like:
*This is the actual breakdown of your Expenses, Fees, and Taxes. This is extremely important information to have because you can deduct all these expenses so that you do not have to pay taxes on them. The TurboTax software is extremely good at guiding you through the process of deducting these to the point where all you have to do is fill in the boxes that correspond to your expense report shown above. It is as easy as that. So do not let yourself get frustrated or stressed with this process. If you do, as it happens to most of us, take a 5 minute break and then get back to it!
(Now that you have your required documents and understanding of those documents to begin your tax refund, let’s take a closer look and get an understanding of which form inside TurboTax you will report your earnings and losses on)
Schedule C, Profit or Loss from Business
You’ll report the income you earn as a rideshare driver on Schedule C, Profit or Loss from Business, which you’ll file along with Form 1040.
*If you’re moonlighting as an Uber driver to supplement income from another job, you’ll report both incomes on Form 1040
If you earn self-employment income from a different type of business, such as Airbnb hosting services, you’ll need to file a separate Schedule C for that business. The same is true if you earn income as a wedding singer, yoga teacher, or anything else. Generally, each separate type of business you run requires a separate Schedule C. You’ll enter the total income from all of your businesses on Form 1040.
(Now, Let’s dive into the deductions for your business and the best way to get the most money back)
Deductions for mileage and the business use of your car
The Uber tax summary of total online miles includes all the miles you drove waiting for a trip, en-route to a rider, and on a trip. You can claim any other business-related mileage, such as the mileage you drove to ride requests, the mileage you drive after dropping off the passengers if you're waiting for another ride, and the mileage you drove before rides were canceled. However, you must keep careful records of your off-trip mileage. What I always do is take a picture, with my phone, of my odometer as soon as I get in my car and then another picture as soon as I pull back into my driveway before I sign off. This way you will have documented the entire amount of miles driven during that shift. *If you think you might have trouble remembering to do this, there are also many mileage tracking apps that can be used to track your miles.
There are two ways to calculate the business use of your car:
You can deduct the actual expenses of operating the vehicle, including gasoline, oil, insurance, car registration, repairs, maintenance, and depreciation or lease payments.
Or you can use the standard IRS mileage deduction. For the 2019 tax year, that rate is 58 cents/mile of business use.
*The standard IRS mileage deduction usually produces the higher deduction, and it’s definitely the easiest option.*
To do this you simply multiply your total business miles by the IRS rate.
Example:
You drove 10,000 miles.
Your expense equals $5,800 (10,000 X $ 0.58 = $5,800).
If you use the same vehicle for both your ridesharing business and your personal transportation, you must keep accurate records to separate the two uses. You're allowed to deduct only the expenses that apply to the business use of your car.
Deductions for mobile phone expenses
Your smartphone is essential to your business, so naturally its expenses are deductible. This can include:
The cost of the phone itself
The billing charges of your carrier
And any accessories that are essential to your business, such as chargers, mounts, and cradles
As with your car, you're only allowed to deduct the portion of your smartphone expenses that are related to your business use. For that reason, many Uber driver-partners purchase a new phone and dedicate it solely to their business. That way, 100% of all costs associated with that phone are deductible from their taxes.
More tax deductions for Uber driver-partners: Almost anything you spend on your ridesharing business will qualify as a tax-deductible business expense. This includes the business use of your car and mobile phone, but it can also include:
Bottled water, snacks and amenities for customers
Business taxes and licenses
City and airport fees
Freeway, highway, and bridge tolls
Electronic toll transponder
Floor mats
Car tool kit
First aid kit
Tire inflator and pressure gauge
Portable battery jump pack
Flashlights and flares
Roadside assistance plans
Office supplies (or cleaning supplies for your vehicle)
Meals while clocked in: Meals that you purchase while driving are also tax deductible. Similar to passenger goodies, only 50% of the cost for these items can be deducted.[Where to deduct: Schedule C, Line 24b “Travel, meals, and entertainment - Deductible meals and entertainment”]
(*you can even deduct the price you pay for your annual vehicle inspection)
REMEMBER: Actual car expenses such as gas, insurance, car payments, and maintenance cannot be claimed alongside the standard mileage deduction. Since the standard mileage rate is based on a study of the fixed and variable costs of operating an automobile for business purposes, expenses like depreciation, insurance, repairs, tires, maintenance, gas, and oil are already factored into this rate. When you record your mileage, you are using the standard mileage deduction, rather than itemized car expense deductions. This means you don’t have to save receipts or report expenses for these car expenses. Note: Typically, the standard mileage deduction saves rideshare drivers more money than the actual car expense method.
When can the actual expenses method be better?
Under certain circumstances, the actual expense method may be more favorable – for example, this method may be better if your car maintenance expenses throughout the year were very high. Remember, if you use the actual expenses method in the first year that your car is operational for your business, you must continue to use this method in future years. This means that you might be sacrificing consistently high deductions in future years for a marginally higher deduction this year. As mentioned previously, the standard mileage rate is relatively generous, in order to cover common operating expenses. Be certain you are comfortable using the actual expenses method in the coming years before choosing this direction. We highly recommend consulting a tax accountant if you’re thinking about opting for this method.
Mileage Tracking Apps:
If for some reason you only keep records of one thing during your rideshare driving, track your mileage. (Though I personally recommend doing the best you can to keep records of ALL YOUR BUSINESS EXPENSES.) Like I said before, I simply take a picture of my odometer as soon as I clock in and as soon as I clock out. But, everybody does things differently so I am going to show you 8 mileage tracking apps that you can use to keep records of all your miles with ease.
Simply search for any of these in your app store and download them for free. They are easy to use and very reliable. While Uber and Lyft do provide you with a mileage total on your tax summary at the end of the year, they’re not tracking all your rideshare miles especially if you drive for both apps and tend to switch often. Since you can deduct mileage, you’ll want to track every single mile that you drive for each company. You should also track miles that are outside of rideshare driving but related to you driving for Uber or Lyft. For example, track your mileage when you drive to a local Greenlight Hub, when you go to Best Buy to get a dash cam, or when you’re getting a car wash.
Other Options:
I believe TurboTax, overall, with the deal they offer to driver’s and the user friendly platform they provide, is the best way to do your Uber/Lyft taxes. Not everyone is going to use TurboTax though. Everyone has their own personal preferences. Below are some quality options to use if you do not feel comfortable using TurboTax.
Hiring a RideShare CPA
Hiring a CPA (certified public accountant) to file your taxes is one of the safest routes to take because accountants know the tax code and some might even specialize in what you are looking for.
Generally, using a CPA to file your taxes can run you anywhere from $250 to $400 depending on your situation so it’s one of the more expensive options. The benefit of having a CPA is knowing that you can go back to the same person year after year and they’ll keep track of all your information. You can ask questions whenever you want and also get reminders to make quarterly estimated tax payments.
H&R Block
H&R Block has tax filing offices all over the country, but you can probably spend less by filing taxes online or downloading their software program. As a rideshare driver, you’ll want to use their Premium Online tax filing service for $49.99, or Self Employed Online service for $79.99.
FreeTaxUSA
FreeTaxUSA is an IRS-approved e-file provider and a top-rated tax filing software program. As their name suggests, you can file advanced and simple returns for free not including state fees. As a rideshare driver, you’d be looking at there free advanced tax filing service.
While they don’t charge for Federal returns and also offer a 100% accuracy guarantee, the company does charge $12.95 for state returns and other additional services they sell. For example, you can pay an additional $6.99 for priority support, audit assistance, amended returns.
Tax Act
Tax Act offers self-employed tax filing services for $74.95 online and $124.90 to download their software. You can easily import things like income, expenses, depreciation and more while receiving step-by-step guidance for a maximum refund.
Liberty Tax
Liberty Tax has their own tax filing online service that is affordable for freelancers and contractors. The best package for rideshare drivers is the Premium service for $44.95.
Common Questions & Concerns:
What if I am renting a vehicle for Uber/Lyft driving?-
If you are renting a car through a program like Lyft’s Express Drive, then you can not take the standard mileage deduction. Instead, you’ll need to deduct your weekly rental payments and allocate your percentage of personal and business use (you’ll need to track your miles in order to be able to do this though)
What do I do about health insurance?-
The recent tax law provides rideshare drivers, and other self-employed folks, with 2 new opportunities to reduce taxes:
Qualified Business Income (QBI) — line 9 on the new 1040, a reduction to taxable self-employment income
Self Employment Health Insurance Deduction — line 29, schedule 1 “Additional Income and Adjustments to Income.”
I expect few self-employed people are aware that they can deduct health insurance as a business expense and reduce taxes.
Final Thoughts
Remember, with TurboTax Self Employed, they’ll ask you simple questions and have you fill out all the right forms for you to maximize your tax deductions.
To recap, first, make sure you follow the link provided by Uber that offers you the great discount on your tax returns as a rideshare driver. Directions to find this link are above. Next, have your Uber/Lyft tax summary and 1099 as well as all relative tax deductions you will be writing off before you begin. Finally, make sure to follow all the prompted questions once you are inside the TurboTax software.
It really is that simple and easy. A lot of people get intimidated with numbers and taxes, overthinking the issue and making it harder than it has to be. But, if you take a deep breath, stay calm and follow the questions, you will have no problem getting your taxes done properly. If you have any problems during the process or need additional help, feel free to reach out to us via direct message on Instagram or email us at contact@rmi-inspections.com and we will do our best to assist you with your problems. Good luck, and make a lot of money!
Ⓒ RMI-INSPECTIONS 2020