If you have recently started driving for a rideshare company, it is important to stay on top of your tax expenses and deductions. Driving for rideshare companies like Uber and Lyft has become a very popular and lucrative way for people to make some extra money on their own time. The IRS sees you as a small-business owner, therefore you will have to pay self-employment taxes in addition to income tax.
Track Your Rideshare Deductions
You are eligible for tax deductions for the business expenses that come with operating out of your own vehicle. It is imperative to keep track of all your expenses as they occur and always save any receipts from driving. The dashboard of your Uber or Lyft app will keep track of all your fees and commissions but everything else is left to the driver.
- The Mileage Rate for 2020 is 57.5 cents per mile.
- Tolls and Parking
- Fees and Commissions
- Cost of Phone (only the portion used for business is tax-deductible)
- Accessories: chargers, mounts, etc.
Save Your Tax Money
When you receive income from a rideshare company, taxes are not automatically taken out. The amount of money you can withdraw from the app should not be total profit. Whether you make estimated payments on a quarterly basis to the IRS depends on your self-employment income. Therefore, if you expect to owe more than $1,000 in taxes you will have to make estimated payments. This is all left up to the driver, as a small business owner, and is necessary to avoid an audit or fees.
File Your Taxes
When you finally go to file your taxes, this is when you will need all the documents and information you have been accumulating through the year.
- 1099-MISC and/or 1099K forms from the rideshare company
- Printout of your Uber/Lyft dashboard
- Mileage Report
- Receipts/Invoices/Credit Statements
- Expense report (a list of any other deductions)
To learn more about this topic, visit the Gig Economy Tax Center on the IRS website.
If you have any questions or concerns regarding the tax implications of driving for a rideshare company, we encourage you to reach out to us here.