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 in early February, 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.
So let’s get started:
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 voluntarily sends out 1099-Ks to all drivers regardless of whether or not you hit the $20,000/200 ride threshold. So every single Uber driver will get a 1099-K as long as you made more than $0.
If you made over $600 in referral bonuses or miscellaneous income, then you will also receive a 1099-MISC. The 1099-MISC is pretty straightforward: whatever number appears there is the amount you made and will be combined with the gross fares from your 1099-K.
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 now have to sum up the expenses from your 1099 Summary Page (that can be accessed under Tax Information’ on your Uber Dashboard).
Tolls, split fare fees and safe ride fees will be listed as both earnings and expenses. Since they are already included in the income portion of your Schedule C, you will combine them with the device subscription fee and Uber fee in order to get your total expenses. That number will be entered on line 10 of your Schedule C – “Commissions and Fees”.
If you’d like to do one final sanity check, you can easily add up all of your payouts from your partner statements throughout the year, and that number should equal (or be very close, mine was off by 1 cent for some reason) your ‘Total Income (1099-K gross fares + 1099-MISC)’ – ‘Commission and fees (all of Uber’s fees listed on the 1099-K Summary)’.
Now I know some people have stated you can just enter the sum of your partner payment statements on your Schedule C as your total income. But while this would produce the same final net profit, it could cause a mismatch with the number Uber reports to the IRS as your total income, so that method is not advised.
Lyft handled their 1099-MISC the exact same way as Uber: drivers who earned over $600 in bonuses, mentor rides, etc received one. But for 2016, they’ve changed their 1099-K rules and 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 Lyft’s tax summary page. There you’ll see your gross ride earnings, Lyft commission and tolls paid. Note that Lyft does not include the trust and safety fee like Uber so you can ignore this number completely.
The process is pretty simple from here since you will take your gross ride earnings and add that to your 1099-MISC earnings (if you got one) and enter that as income on your Schedule C. Then add up Lyft’s commission and tolls paid and enter that in line 10 of your Schedule C – ‘Commission and fees’.
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 a CPA about that. You could probably argue that since Uber now offers UberEats for example, your business is really more providing ‘logistic services’ than rideshare or delivery type services.
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 2016, the standard mileage rate was 54 cents per mile (for the 2017 tax year, it drops down to 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 54 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 actually provides the total number of miles you drove while on a trip in your 1099-K summary. Lyft provides your total number of miles while you were logged in to driver mode. If you don’t have any records of mileage, you may be able to go off of this, but it’s very important to keep your own logs.
The three most important rules when dealing with the IRS are documentation, documentation and documentation. I try to document the starting mileage every time I leave the house to rideshare drive and the ending mileage every time I get home. So if you didn’t keep this type of detailed records, then your next best bet is to use the mileage totals from Uber and Lyft or try to calculate it using one of these methods.
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 in 2017 (which could save you hundreds on your taxes).
There’s some confusion around which miles you can deduct as a driver, but the short answer is it depends. Some CPAs will tell you that you can only deduct on trip miles and the miles in between fares. That would be your minimum mileage deduction but personally, I deduct all the miles from the second I leave my house until I arrive home.
It’s really up to you/your CPA on how aggressive you want to be, but if you use Uber’s destination filter at the beginning/end of your shift, I think that makes an even stronger case that those miles are deductible.
Remember, Uber only provides on-trip miles so you’ll want to use a third party mileage tracking app like Stride Drive or QuickBooks Self-Employed. You can find a full list of mileage tracking apps here.
- 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.
- Here’s a good resource from Starzyk CPA if you want to learn about some more tax deductible expenses: Everything You Need To Know About Rideshare Taxes. And if you’d like to hire Joe, please click here to fill out an inquiry form.
How Do Most Drivers File Their Taxes?
If you’re wondering what your fellow drivers do when they file their taxes, here are the responses from a survey I sent out at the beginning of the year:
Hiring a Rideshare CPA
If you’re going to go the CPA route, I recommend you find someone who’s knowledgeable in small business and/or rideshare drivers. There are hundreds of thousands of rideshare drivers these days, so it shouldn’t be too hard to find a CPA who is familiar with Uber.
A lot of you have asked for my recommendations for a rideshare CPA and this year I’ve partnered with Starzyk CPA to offer a special deal for RSG readers. If you’re interested in using Joe’s services, please fill out this form.
Using Tax Software
TurboTax/QuickBooks Self-Employed Bundle
I’ve always been a fan of TurboTax software, and since Uber and Lyft drivers have 1099 income, you’ll need to go with the TurboTax Self-Employed edition. This year, they’re also offering a deal where you can get the QuickBooks Self-Employed (QBSE) Tax Bundle, which combines QBSE with TurboTax Self-Employed. That way, you can just export all of your ridesharing deductions from QBSE directly into TurboTax vs. starting from scratch.
If you don’t want the bundle and just want to get TurboTax, please consider using my affiliate link and I will get a small cut out of any purchase you make.
H&R Block Online Software
I haven’t ever used H&R Block for my taxes, but I do have several friends who use the software and find that it’s very similar to TurboTax but at a lower price point. H&R Block also has all of the same auto-import features and both services can actually import each other’s returns from prior years so switching shouldn’t be much of a hassle.
If you end up using H&R Block for your taxes, please consider using my affiliate link and I will get a small cut out of any purchase you make.
Here’s a quick reference guide that was given to H&R Block tax preparers to deal with Uber drivers.
Frequently Asked Questions
Why is the amount on my 1099-K from Uber higher than what I earned last year?
Since Uber considers themselves a third party payment processor, the amount shown on your 1099-K is going to include the amount you earned plus Uber’s commission, tolls, etc. So it’s up to you to subtract out the fees and tolls using the example above.
Why didn’t Lyft send me a 1099?
If you made less than $20,000 and 200 rides, you won’t receive a 1099-K from Lyft. You still need to pay taxes on the money you made though, so head to your Lyft summary page and get the info you need there to do your taxes.
What is the business code for Uber and Lyft for my Schedule C?
For Uber & Lyft use: 485300 Taxi & Limousine Service
Business codes are used by the IRS to categorize your business for statistical purposes only. The code you enter will not affect the outcome of your tax return.
What if I’m renting a car to drive for Uber or Lyft?
If you’re renting a car from 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).
Why did I get two 1099-K’s from Uber?
Some drivers received two 1099-K’s this year and if that’s the case, you’ll need to combine the income from both and add it to your Schedule C.
Readers, do you now have everything you need to go out and do your own taxes? Are there any tax questions you still have or things I missed?
Disclaimer: This article is meant for informational purposes only! You should talk to a CPA about your own individual tax situation or pay a licensed professional.
-Harry @ RSG
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