If you are a new Uber driver, you might be wondering whether you need to pay taxes. The answer is yes, and the time you spend doing this is irrelevant. Whether you use it for additional income or it’s a full-time job, paying taxes is mandatory for all Lyft drivers.
The good news is you have the right to Uber driver tax deductions. This guide discusses crucial tax tips to lower the overall payable sum. Here is what you should know to do everything by the book!
How Much Money Should I Set Aside for Uber Taxes?
Uber drivers need to pay two different tax types:
- Self-employment taxes. These are necessary for anyone whose income from Lyft or Uber crosses $400. The law considers you a sole proprietor, and these taxes are for Medicare and Social Security. In 2021, self-employed Americans paid 15.3% of the initial 92.35% of net earnings. You can lower the net earnings by utilizing the Uber driver tax deductions below.
- Income taxes. The actual sum depends on that and other sources of income, credits and deductions, tax bracket, and other factors.
Nobody can tell you the amount to set aside for Uber taxes. However, the usual percentage of your income that falls off on taxes is 25-30%.
What Can Be Deducted?
We can divide all Uber driver tax deductions into two categories:
- Vehicle expenses. These include anything connected to actual car driving. The usual expenses are tolls, parking, and crossed mileage.
- Operating expenses. These range from Lyft and Uber fees to mobile phone expenses and passenger snacks.
The crucial consideration is that all Uber driver tax deductions should be connected to your business. You can’t add a personal expense, and if it’s mutual, you need to calculate the amount spent on your business. So, if you use the same mobile phone plan, you can claim 20% of the bill as a tax deduction.
You have two approaches when calculating vehicle expenses. It’s vital that you can only choose one, and there’s no option to combine these methods.
Standard Mileage Deduction
It’s the more common option because it’s easier to calculate it. You include two steps when calculating these Uber tax deductions:
- Standard mileage. You multiply the number of miles you pass with your car with the current standard mileage rate. In 2021, that rate was 56 cents. So, if you passed 1,000 miles, you’ll get 56,000 cents or $560. The standard mileage rate covers gas, car depreciation, and maintenance.
- Parking and tolls. You can claim all expenses in this category for a tax deduction.
Actual Car and Truck Expenses
It involves tracking any expenses you had related to your car. That includes the money you spent on gas, license fees, insurance, repairs, etc. You can claim deductions for lease payments, roadside assistance, towing charges, and even car washing.
Actual car expenses also include depreciation, but it’s extremely difficult to calculate it. You’ll need to consult a professional for that part. Additionally, It takes great effort to keep records on the gas you spent during your Uber shifts and other expenses.
These expenses include all other costs related to your business, but not the ones to actual vehicle driving. Here is the list of usual operating expenses to include in tax deductions:
- Provider commissions and fees. Uber and Lyft both take a portion of each fare, and you can find the rates in your dashboard.
- Passenger snacks. If you have snacks and refreshments for passengers, you can claim them as tax deductions.
- Personal protective equipment. During the pandemics, these included sanitizers, face shields, masks, etc.
- Accessories. If you add cables, chargers, and other accessories to your car.
- Smartphone plans. If you use the same number for personal reasons, you can only claim a portion of each bill.
These aren’t the only operating expenses that can be deducted. Others include electronic toll transponder, mileage tracking software, business licenses and taxes, tire inflators, etc.
How to Claim Business Expense Tax Deductions on Your Taxes
The IRS requires you to file a Schedule C to list your income and deductions. Uber will send a summary of your income and potential business expenses during the year. Depending on your income, the platform will also send the following forms:
- Form 1099-NEC. It shows any other non-driving income, such as referrals and additional bonuses. You don’t have to submit it if it hasn’t crossed $600.
- Form 1099-K. It shows how much you charged the passengers for the drives, including all fees. You won’t receive it if you got under $20K in payments or processed up to 200 transactions.
If you identified any vehicle expenses, put them among the “Car and Truck Expenses.” You’ll notice them in Part II, Line 9 of your Schedule C form. If you have other Uber driver tax deductions, you can add them to Other Expenses under Line 27a.
Now, pay attention to the form’s part IV. You can add extra mileage data for different cars. Once you enter all information, you can submit all relevant documentation.
Do Uber and Lyft Report Earnings to the IRS?
Uber, Lyft, and similar services won’t report your earnings to the IRS. That’s because the law doesn’t see drivers as their employees. Instead, they are independent contractors. It implies Uber isn’t responsible for checking if you paid taxes.
However, the law obliges you to pay taxes on your income. If you don’t do that, you risk legal problems and being accused of tax evasion. The good news is that Uber tax deductions can help lower the sum you’ll end up paying. If you need help, don’t hesitate to call a professional to help claim the deductions. It’s imperative to do all taxes in time. That’s the only way to avoid paying more and having legal issues down the road.