Who likes to mess up with taxes? Nobody! And like other W2 employees, even rideshare drivers don't like messing up with taxes as it gets more complicated for them. Hopefully, this article will aid you understand everything you need to know about taxes, including income, deductions, and expenses. Even if you prefer to hire a professional, understanding the basics of 1099 employment is crucial to understand your tax deductions.www.therideshareguy.com)
W2 v/s 1099
Do you know what does it mean to be a 1099 employee, also commonly known as the independent contractor? If not, it's time to update your knowledge. It's important to note that most drivers fall into the former or past W2 employees' category. Hence, for them, taxes are reserved from their paycheck or salary, at the end of the year. This means they're not usually aware of tax deductions when it comes to paying taxes on their own. You may incur a little amount to tax department or may receive a refund, based on your income calculation. But, being an independent contractor or a 1099 employee, taxes is not withheld from your paycheck. This means that as a driver you regularly need to save up a small amount of money from your paycheck every month for taxes to be paid at the end of the year. A good thumb rule is to keep out 30% of each paycheck or salary for taxes.
Even if driving is one of the income sources for you, each quarter, you have to begin repaying assessed taxes. This estimated tax is, in fact, an estimated amount of taxes you'll have to pay at the end of the year, just like an employer withholding taxes from your W2 paycheck.
Since you're a 1099 contractor, you'll also need to register for a Schedule C and SE apart from your normal tax-time. You must know that the moment you become a driver, you become a business owner or a sole proprietor in terms of the tax department. For sole proprietorships tax treatments are same as of LLCs.
1099-K v/s 1099-Miscellaneous
Remember that Uber as well as Lyft, identify themselves as the third-party payment processor. A company that expedites payments between business owners and consumers is a third party payment processor. Now you know why companies such as Square label, PayPal, Amazon Payments, etc. represent themselves as a third-party payment processor.
Of course, Lyft and Uber do much more than just process payments, but this is how they like to acknowledge themselves. For drivers, this indicates that they might receive two different types of tax forms.
1099 of Uber
Regardless of if you get a 1099 or not, don't forget that you regularly have to pay taxes on your earnings. For the tax year 2014, Uber mailed out 1099-K's to all the drivers even if they did not hit the threshold. If your bonuses or miscellaneous income is more than $600, then you are likely to get a 1099-MISC. The 1099-MISC is rather sincere: The amount you made is the number that appears. It will be added to the total expenses from your 1099-K.
This is where Uber complicates the tax situation. It gets confusing with the 1099-K for Uber lists gross fares inclusive of all of their fees, tolls, etc. Add your 1099-K and/or 1099-Misc number, and the total you get will be your income on your Schedule C. That number may be greater than your actual earnings. To get your actual incomes, you just need to get the total of the expenses from your 1099 Summary Page.
Split fare fees, tolls, and safe ride fees will be recorded as expenditures and incomes, both. They are added in the income portion of your Schedule C. Uber fee and the device subscription fee will be combined with it, in order to get your total expenses. That number goes on line 10 of your Schedule C – "Commissions and Fees".
For the final check, to the total of all of your payouts from your partner statements throughout the year. That number is your 'Total Income (1099-K gross fares + 1099-MISC)' – 'Commission and fees (all of Uber's fees listed on the 1099-K Summary)'.
Lyft conducted their 1099-MISC like Uber: drivers received 1099K who earned more than $600 in bonuses, mentor rides, etc. Unlike Uber, Lyft did adhere to the $20,000/200 transaction limit 1099-K limit. Hence, if you haven't reached those thresholds you will not get a 1099-K.
This makes things clear that most Lyft drivers will not be receiving a 1099-K from Lyft. But you still have to pay taxes on the incomes you earned. Make sure you correctly report your income. For that, head over to Lyft's tax summary page and find your gross ride earnings, Lyft commission and tolls paid. Note that unlike Uber, the trust and safety fee are not included in Lyft. Hence, those numbers can be ignored completely.
The process is quite easy now. All you need to do is get your gross ride earnings and add that to your 1099-MISC earnings (if you got one). List this as income on your Schedule C. Next, add up Lyft's commission and tolls paid. This result will be entered on line 10 of your Schedule C – 'Commission and fees'.
Standard Mileage Rate
As a driver, you have the choice of either taking the standard mileage rate of 57.5 cents per mile or deducting actual vehicle expenses. By opting for the latter, most drivers will save extra money. It's a no-brainer that you will save more with your car's standard mileage rate if your car is more economical. The standard mileage rate includes all the expenses and costs to run and maintain your vehicle: oil changes, gas, maintenance, repairs, devaluation, etc.
Documentation is the crucial part when dealing with the IRS. Hence, while you may be able to rely on the numbers from Uber/Lyft, it is generally a lot safer to keep your own independent log. Uber does provide the information on your 1099-K summary page regarding the total number of miles you drove during a trip. Lyft does provide the total number of miles while you were logged in to driver mode.
You should know that other costs and expenses like car washes, candy, tissues, water, Bluetooth, cell phone use, Trunk Organizers, etc. fall under the deductible category, considering they are 'common and essential'.
Owe back taxes to the IRS?
Check out Tax Closure if you owe the IRS and need help getting out of debt. Tax Closure helps reduce or eliminate IRS taxes that you can't pay. Moreover, Tax Closure's employees are retired IRS agents, hence, they know exactly how to aid you reduce or eliminate your IRS taxes.
Hope this article on rideshare taxes helped you!