We recently hosted a live tax Q&A on YouTube with Jenni Bushong from Intuit TurboTax. Jenni holds a J.D. and a Masters in Taxation, and she works as a tax specialist for Intuit. That seems pretty impressive to me when it comes to finding an expert on taxes!
We pulled questions from all of our viewers, ranging from what to do with the extra “fees” on Uber’s 1099-K to whether or not you can deduct back massages. At the end of the show, we passed out three copies of TurboTax Self-Employed to those who asked good questions.
If you missed your chance to ask Jenni a question in real-time, TurboTax Self-Employed actually has a feature called “SmartLook” where you can have a tax specialist do your taxes with you in real-time. And you can even get all your questions answered there without paying for TurboTax Self-Employed (since they only charge you at the end to file).
If you do end up using TurboTax Self-Employed, our link will save you $20 off the full price.
Here’s the full video:
The Basics of Rideshare Taxes
- Uber, Lyft, and other on-demand drivers will likely receive a 1099 at the end of the tax year. A 1099 is different from the W-2 you get at a normal job. It makes your tax situation a little bit more complicated since companies like Uber and Lyft do not withhold any taxes like a traditional employer, so you will have to pay them yourself to the IRS. This is why taxes are such a big deal for drivers.
- Generally speaking, once you have your 1099, the goal is to “deduct” expenses as a driver that are ordinary and necessary. You subtract these “deductions” from the gross income you made as a driver. The number you get afterwards is how much the IRS views as your profitable income from driving, and the IRS will base your taxes off that number.
Standard Mileage Deduction or Actual Expense Method?
One of the biggest points of confusion for drivers comes down to figuring out whether they should deduct the actual expenses for their car or take the IRS Standard Mileage deduction. Taking the actual expenses method allows you to deduct everything line-by-line, whereas taking the Standard Mileage Deduction is simpler since you just track your business miles and multiply by the deduction ($0.54/mile for 2016).
Most drivers will often end up generating a bigger deduction via the Standard Mileage Deduction because most cars operate at a lower cost than $0.54 cents a mile. You can only choose one method, and if you don’t take the Standard Mileage Deduction in your first year of business, the IRS will not allow you to take it in the future.
Related Article: Standard Mileage Vs. Actual Vehicle Expenses
QuickBooks Self-Employed will actually provide you with a report on whether the Standard Mileage Rate or Actual Expense method is better for you by comparing the results side by side. Their mobile app has an automatic mileage tracker built into it that you can turn on when you start driving for Uber or Lyft. You can then compare the business miles you drove with the actual expenses of your car to see which deduction is better. In the case below, the driver should take the Standard Mileage Deduction.
If you end up taking the standard mileage deduction, then you are going to need to keep accurate records of the miles you drive for business purposes along with total miles for the year. This sounds relatively simple, but there seems to be a little bit of confusion around which miles count as business miles.
Related Article: What Miles Can A Lyft (or Uber) Driver Deduct?
Top Tax Questions From Uber and Lyft Drivers
I received my 1099 from Uber but they overstated my earnings! They included my commission cut of 25% and the booking fees! Why do I have to pay taxes on Uber’s earnings and fees that I did not receive?
You actually won’t be paying taxes on that. They give you the gross amount, which means it’s the total amount you earned plus their fees/expenses. So you will need to subtract the fees and commissions you pay to Uber. You would also be able to deduct any subscriptions, device fees, fuel, gas card fees, and other items on your statement.
Remember, the amount Uber/Lyft reports is what is reported to the IRS, so you want to have the FULL amount as income and then take the expenses (like the commissions and booking fees) as deductions. Don’t just reduce the income itself by the commission and report that to the IRS as income – this may generate a letter from the IRS!
Lyft sent me a report of my “driver mode” miles. Are these the only miles a driver can deduct?
There is a lot of confusion around this. Lyft provides miles in “driver mode”, which reflects the total number of miles you drove while logged into their app.
Uber, on the other hand, only provides a mileage report for miles you drive with someone in the car. Uber and Lyft’s numbers are conservative.
It’s important to keep your own records of the miles you drive for your rideshare business. If you track miles on your own, it is a lot easier to figure out the TOTAL miles you drove for rideshare instead of which miles were Uber and which were Lyft.
Related Article: What Miles Can A Lyft Driver Deduct?
(Harry/Editor’s Note: Personally, I deduct all the miles from the time I leave my house to the time I return home. This is the more aggressive approach, but I also have a home office and often turn destination filter on when heading home and into busy areas to drive. Some CPAs will tell you you can only deduct miles when your app is on and others will tell you that you can deduct all miles.)
What do I do if I forgot to track my miles and didn’t keep any records?
I think what Uber and Lyft provided for you in the tax summary is the conservative approach. You do have documentation, and the IRS requires proof. If you have receipts and some written record, like the statements on the tax summary by Uber and Lyft, you can go back and look in your notes. If you kept a calendar, see if you can use that.
Maybe you don’t have specifics on the mileage, but if you could recreate estimated mileage from your calendar or if you could recreate it for even a month, and say if that’s a representative sample and you could prove it was a representative sample, then you can extrapolate that month across the year, or six months. That would work.
You would have to provide some sort of substantiation. Say you only worked in the past six months on the weekends, and you can prove that, for example, in December of 2016, you drove eight hours a day for both weekend days. You could track how many rides you picked up, and you could substantiate that this is what you did for the past year or six months that you were rideshare driving, then you could use that to extrapolate.
Do drivers need to pay estimated quarterly taxes?
You should be making estimated payments quarterly. That’s important because you don’t want to have an underpayment penalty at the end of the year. It’s a low penalty. It’s half a percentage point, but it does add up. You don’t want any of it taking away from your potential refunds. If you don’t make estimated payments, then you basically owe all the tax at the end of the year. If you have a cash-flow issue, then you probably would have to ask for a payment plan through the IRS. It’s not awful, but it’s definitely better to make estimated payments throughout the year.
Note: If this is a “side gig” and you have W-2 income, you can also adjust your withholding on your W-2 to cover the estimates on your Uber taxes.
Are massages allowed as a write-off expense for drivers who drive more than part-time?
Massages are kind of a gray area, I would think. Deductible expenses are those that are ordinary and necessary. You would have to prove maybe a medical condition of some sort that would require something specific like a massage, rather than regularly stepping out of your car and stretching.
Conclusion: If it is required by a doctor, this is a medical expense not a business expense. It would be written off as a part of itemized deductions.
Can I write off my mileage if I rent a car through Lyft’s Express Drive Program?
Have More Questions? Ask A SmartLook Agent
Everyone’s situation is different and you likely have questions that weren’t answered above. TurboTax Self-Employed actually has a feature called SmartLook where you can have a tax expert from Intuit take a look at your progress within TurboTax and provide you with personalized advice.
I gave it a test-run in this article and made sure to ask some tough questions. The results were pretty good and I think a SmartLook agent will be able to handle the vast majority of rideshare tax questions.
The best part is you can get that advice before paying for TurboTax Self-Employed 😉 Of course, Intuit is betting that you will like it and pay for it anyway.
Ready to File Taxes For 2016?
If you have waited until the last minute to file your 2016 taxes (like I have) you can use our link with Intuit to get a $20 discount on TurboTax Self-Employed. It is the version of TurboTax that will allow you to input your 1099’s and Schedule C (for deductions) so you can minimize your tax liability.
Disclaimer: The above video and article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
Have you filed your taxes for this year? If so, did you do it yourself, hire someone, or use tax software like TurboTax?
-Christian @ RSG