Are you a driver for Uber, Lyft, Sidecar or another car service? Tax time can be a confusing season for you. Let’s go over some basic concepts you might want to be aware of when it comes to filing your taxes.
If you are a part of the gig economy, such as a driver for a car sharing service you are most likely considered an independent contractor. While it may seem like you work for Uber or Lyft, you are self-employed. From the perspective of the company, whether it’s Uber or Lyft, you’re the proprietor of an entirely separate business which it uses to offer driving services. This means that when you receive payment for your services, it is not technically a paycheck: no taxes have been taken out.
As a result, you are responsible for federal and state withholding taxes, and social security and Medicare. These taxes can be a significant portion of your annual income, so it’s wise to have money set aside for when these taxes are due.
Tax Deductions Available For Drivers
Similar to other tax deductions such as moving expenses, you can deduct certain things when it comes to your driving service. Because you are an independent business owner, any money you spend will more than likely be a tax-deductible expense.
Perhaps the biggest expense would be your car. You have two options for deductions when it pertains to the usage of your car for business activity:
- Deduct expenses of operating the vehicle for business, including gas, oil, repairs, insurance, maintenance, and depreciation or lease payments.
- Standard IRS mileage deduction: 2017 rate is 53.5 cents per mile driven for business use.
If you drive for a car service like Uber or Lyft, you most likely use your vehicle for both business and personal transportation. It’s important to note that you can only deduct expenses for the business use of your car. To add, it’s vital you keep diligent records when it comes to:
- Mileage logs
- Any other documentation
Other possible deductions include:
- Commissions you paid to the ride-share company
- Technology installed in your car
- Snacks for passengers
- Tolls and parking fees
Because you’re a contractor, you won’t receive a W-2 Form from your ride-share operator: but you will likely receive one or more 1099 forms. These forms differ from a W-2 Form in that they are catered to an “independent contractor.” Business entities are required to file this form if an employee, which fits the criteria of an independent contractor is paid $600 or more during the year.
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These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.