One of the things a lot of new drivers overlook when they’re just getting started is taxes. Taxes as an independent contractor might seem scary, but they’re actually pretty simple. Today, we’re going to answer all the questions you may have to make sure you maximize your deductions and minimize your taxes paid.
Every year by the end of January, Uber and Lyft send out 1099s for the prior tax year that detail how much you made, what fees they took out and the miles you drove. And since drivers are independent contractors, all that means for your taxes is that you’ll have to file a Schedule C in addition to your 1040. This year they cut it pretty close and sent out 1099 info on Jan. 31, 2017!
1099-K vs 1099-Misc
Uber and Lyft both consider themselves third party payment processors. I’m familiar with this term because I used to accept Paypal payments with one of my old businesses, and only in years where I made over $20,000 and did 200 transactions would I receive a 1099-K.
A third party payment processor is essentially a company that facilitates payments between consumers and business owners. So that’s why you see companies like Paypal, Amazon Payments and Square label themselves as third party payment processors.
Now obviously Lyft and Uber do a whole lot more than facilitate payments, but this is the distinction they’ve decided to go with. This won’t affect the amount you pay in taxes, but it does mean they’ll report gross income and you will have to subtract out the fees/commissions they charge.
Uber’s 1099s
New for 2018:
You may receive these tax documents from Uber:
A tax summary: an unofficial document produced by Uber and provided to every driver/deliverer. This tax summary will have a breakdown of your annual earnings and business-related expenses that may be deductible.
1099-K: An official IRS tax document that includes all on-trip gross earnings. Only drivers who made more than $20,000 in passenger/delivery payments and provided at least 200 rides/deliveries will receive a 1099-K.
1099-MISC: An official IRS tax document that shows a breakdown of promotion, referral and other payments for the year. Only drivers/deliverers who received more than $600 or more of these payments will receive a 1099-MISC.
New this year is Uber’s tax summary, which all drivers will receive. An example of the tax summary you’ll receive,has been attached and you’ll notice that the tax summary now shows your total online miles. This means miles waiting for a trip, miles on your way to pick up a passenger/UberEATS order, and on trip miles. This is different from last year, when Uber’s statement only showed on trip miles.
In addition, the tax summary also breaks down your expenses, fees, and tax. This part will show you potential tax deductions.
Now where it gets confusing is with the 1099-K, since Uber reports gross fares including all of their fees/tolls/etc. All you need to do though is combine the number on your 1099-K and/or 1099-Misc, and that is the total that will go down as your income on your Schedule C.
Now I know what you’re thinking. That number is a lot higher than what you actually made, and you’re 100% right. In order to get your true earnings, you will want to subtract all of the expenses, fees and tax.
Lyft’s 1099
Lyft handled their 1099-MISC the exact same way as Uber: drivers who earned over $600 in bonuses, mentor rides, etc received one. Unlike Uber, Lyft will be sending a 1099-K to all drivers who earned at least $600 in gross ride receipts. So if you did not meet that threshold, you will not receive a 1099-K.
But remember, regardless of whether you get a 1099 or not, you still have to pay taxes on all the money you earned. In order to correctly report your income, you’ll need to head over to log in to your Driver Dashboard and click “Tax Information”. There you’ll see your gross ride earnings, Lyft commission and in ride miles/out of ride miles. You can add the two mileage numbers together to get your total ‘online mileage’ which would be similar to the number Uber provides.
To print out your Lyft 1099 forms, visit your driver dashboard here and click to “Tax Information”.
Driving For Lyft And Uber
If you’ve been following my advice over the past year, you probably drove for more than one TNC last year. If that’s the case, you still only have to file one Schedule C, but you will need to combine the income from Lyft and Uber on your Schedule C and combine the commission and fees from Lyft and Uber too. Just make sure you account for the correct expenses as detailed above.
Since Uber and Lyft are all considered the same ‘rideshare driving business’, you only need to fill out one Schedule C. If you also did delivery, technically you’re supposed to do a separate Schedule C but I’d speak to our CPA about that.
Deductions
Standard Mileage Rate
We’ve talked about standard mileage rate vs actual expense method before but for most of you, the standard mileage rate will likely make more financial sense (and it will be a lot easier). Just note that if you opt for the standard mileage rate, you must choose to use that in the first year the car is used as a business. In later years, you can then choose either method. For 2017, the standard mileage rate is 53.5 cents per mile and that basically includes all of the costs to operate your vehicle: gas, depreciation, oil changes, maintenance, repairs, etc.Remember, the actual cost to own and operate your vehicle is not 53.5 cents per mile though. That is the deduction amount that you will get from the IRS. Your actual cost should be a whole lot less, especially if you want to be profitable as a rideshare driver.Uber provides the total number of miles you drove while online in your tax summary and Lyft provides the total number of on trip and off trip miles while online (which you can combine to get your total miles driven while online). You can use this number but it may not include all of your deductible miles.Documentation and records are extremely important when it comes to filing your taxes.
Tracking Mileage
If you’re only going to track one thing, make sure you are tracking your miles! A full-time rideshare driver will easily put 1,000 miles a week on their car which translates into a $535 deduction each week or $27,820 through the year (which is pretty massive).
There’s some confusion around which miles you can deduct as a driver, but personally, I deduct all the miles from the second I leave my house until I arrive home. Especially now that you can turn on the destination filter if you commute in/out of the city.
Other Deductions
Other expenses like car washes, cell phone use, candy/water/etc, Spotify membership, Bluetooth, Trunk Organizers, etc may be deductible too as long as they are ‘ordinary and necessary‘.
The only thing you’ll need to watch out for with deductions is a cell phone that may be used for personal and business use. Generally, you will need to allocate between personal/business use, so if you use the phone 50% of the time for business and 50% of the time for personal, then you would only be able to deduct half of the cost of the phone and monthly subscription.
