taxes / deductions for ride-share drivers

RESOURCES

The following apps are recommended to take advantage of tax deductions for ride-share drivers:

 

MileQ   (mileage tracking app)

Quickbooks Self Employed (accounting app)

OVERVIEW

Uber and Lyft drivers are currently considered to be self-employed as independent contractors AND NOT direct employees of Uber or Lyft.  This may change in the near future.  While there is a good deal of controversy surrounding this issue, it doesn't change the fact that for the time being Uber and Lyft driver must pay their own income taxes.

At the beginning of the calender year (in January), Uber and Lyft will send out 1099 tax forms to all their drivers .  The 1099 form is a series of documents the Internal Revenue Service (IRS) refers to as "information returns." There are a number of different 1099 forms that report the various types of income you may receive throughout the year other than the salary your employer pays you. The person or entity that pays you is responsible for filling out the appropriate 1099 tax form and sending it to you by January 31.  This will state the TOTAL GROSS EARNINGS from this entity that you are responsible to declare on your 1040 TAX FORM by April 15th.   If you drive for both Uber and Lyft, you'll get a 1099 FORM from each.

Generally, Uber and Lyft drivers will receive a 1009-k TAX FORM.   Uber and Lyft drivers that have referred new drivers and have received bonuses for doing so will also receive a 1099-misc TAX FORM.  Both of these will need to be added into your TOTAL GROSS EARNINGS.

Income tax from earnings as a ride-share driver are reported to the Internal Revenue Service (IRS) on the Schedule C 1040 FORM.    Deductions are also reported on this form.  To view this form, go here.   

The good news is that as an independent contractor, you have the right to deduct any and all expenses that are related to your ride-share driving business.   

DEDUCTIONS

Deductions are expenses that may be subtracted from your TOTAL GROSS EARNINGS as it relates to filing income taxes. There are basically 2 classes of deductions for Uber and Lyft drivers:

  1. Direct Automobile-Related Expenses

  2. Other Ride-Share Driving Related Expenses

DIRECT AUTOMOBILE-RELATED EXPENSES

There are two methods that can be used to calculate your DIRECT AUTOMOBILE-RELATED EXPENSES: 

 

ONLY ONE METHOD IS ALLOWED BY THE IRS (Internal Revenue Service).

  • STANDARD MILEAGE RATE METHOD

  • ACTUAL EXPENSES METHOD

You'll most likely want to compare these two methods and choose the larger expense amount when doing your taxes.

 STANDARD MILEAGE RATE METHOD 

 

The standard mileage rate deduction for 2018 is $0.545 per business mile driven.   

 

Example:  After 1,000 business miles have been driven, $545 can be deducted from the TOTAL GROSS EARNINGS.     

 

The STANDARD MILEAGE RATE includes:

  1. miles driven during a ride-share trip with a passenger in your car.

  2. miles driven to pickup a ride-share passenger.

  3. miles driven to a gas station or store to purchase ride-share related business supplies.

The easiest and most convenient  way to log your business miles is to use a mileage tracking app.   These apps use GPS to record the number of miles, along with the actual routes driven.  At the end of your driving shift, you can easily open the mileage app and see each of your trips.    It just takes a few seconds to swipe right or swipe left to classify trips as either PERSONAL or BUSINESS.   

 

For the most part, these mileage tracking apps will separate your trips by sensing a stationary time period in between trips via your mobile phone.    Some trips may be lumped into one larger trip. though.   As long as the Uber Driver or Lyft Driver app is on, then that one larger trip can be classified as a BUSINESS TRIP.   

We recommend the following mileage tracking app:

MileQ

 

The standard mileage rate deduction is reported on the Schedule C of the Form 1040 in line 44.  The STANDARD MILEAGE RATE is usually the best way to go because, unless you incur major repair expenses on your vehicle, it usually ends up being a larger deduction than the ACTUAL EXPENSE METHOD.   

ACTUAL EXPENSES METHOD

The ACTUAL EXPENSES METHOD involves a lot more record keeping than with the STANDARD MILEAGE RATE METHOD.   This method basically allows for the deduction of all your operating and maintenance expenses related to the use of your automobile(s) for ride-share driving.    These expenses include, but are not limited to, the following:

  • Registration fees

  • Insurance

  • Lease payments

  • Depreciation

  • Gas

  • Tires

  • Repair and Maintenance expenses (oil changes, brake pads, etc.)

If you use the vehicle for both personal and business trips, then you'll need to log your miles driven separately.    When it comes time to declare your deductions, you'll need to allocate a percentage of miles driven both for PERSONAL USE and for BUSINESS USE.     The percentage of miles driven for BUSINESS USE will then by multiplied by the total ACTUAL EXPENSES.

 

We'll use the same data (10,000 miles driven, 90% of miles driven for BUSINESS USE) in the following 2 examples to compare both methods

Example 1:  If you end up driving 10,000 miles during 2018 and 1,000 of the miles were for PERSONAL USE, then 10% of the TOTAL MILES DRIVEN would be for PERSONAL USE.  90% of the TOTAL MILES DRIVEN would then be allocated for BUSINESS USE. 

The total amount of all your ACTUAL EXPENSES will then be multiplied by the percentage of miles driven for BUSINESS USE.  This will be your total DIRECT AUTOMOBILE-RELATED EXPENSE deduction.   You can use this number to compare to what your deduction would be if you used the STANDARD MILEAGE RATE deduction method.  

Example 2:   Your total ACTUAL EXPENSES (those listed above) for the calendar year 2018 add up to $5,000.   90% of the miles driven were for BUSINESS USE.   Then your net ACTUAL EXPENSES would equal $4,500  ($5,000 X .90 = $4,500). 

 

Using the STANDARD MILEAGE RATE METHOD, 90% of the 10,000 miles driven have been  classified as for BUSINESS USE.   10,000 X .90 = 9,000 business miles driven.  The STANDARD MILEAGE RATE is $0.545/mile.   9,000 miles X $0.545/mile = $4,905.     

 

This yields an additional $405 that can be deducted over your ACTUAL EXPENSE METHOD.  This means that your best method for calculating your total DIRECT AUTOMOBILE-RELATED EXPENSES would be to use the STANDARD MILEAGE RATE.

OTHER RIDE-SHARE DRIVING RELATED EXPENSES

There are, in addition, other expenses that are allowable deductions by the IRS that can be declared whether you choose to use the STANDARD MILEAGE RATE or ACTUAL EXPENSE METHOD.   These are expenses related to your ride-share driving business but not direct operational automobile expenses.   These include:

 

  • Towing fees

  • Tolls

  • Parking fees

  • Airport Fees

  • Bottled water and snack expenses (if you supply water/snacks to your passengers)

  • Any removable items from your car that are directly related to servicing your passengers (such as iPad, tablet, mobile phone, chargers, vacuum, etc.)

  • Mobile phone cellular service monthly fees

These additional expenses, just like any other expense, need to be assigned a percentage of BUSINESS USE.     

 

If the expense was incurred during your ride-share driving shift, then it is most likely a 100% BUSINESS USE allocation.  But if you have an unlimited data plan on your mobile phone and drive 40 hours a week, then 24% of your cellular data plan monthly fees can be deducted (40 hours divided by 168 hours/week = 24%).  If you pay for data by use, though, you'll need to figure out how much data is used for BUSINESS USE, as opposed to PERSONAL USE.   

NOTE:  The Uber Driver and Lyft Driver apps use a lot of cellular data.  You'll need an unlimited data plan from your cellular carrier, otherwise you'll be stuck with additional DATA USEAGE FEES that far exceed what an unlimited data plan would cost.

 

Obviously, tolls that are incurred during a ride-share trip may or may not be reimbursed by Uber or Lyft.   If you cross a toll during your route to pickup or drop off a passenger, then Uber or Lyft will include that toll fee into your payout for that ride.    So only tolls that you incur that are NOT REIMBURSED by Uber or Lyft can be deducted as BUSINESS USE expenses.

 

PAYING TAXES

 

As an independent contractor or self-employed person, it's a good idea to keep records of all your expenses (including receipts for proof) and a breakdown of personal/business miles driven.   Again, it's a good idea to use a mileage tracking app.  Otherwise, you'll want to log in your miles driven on a notepad.  Your accountant or bookkeeper will need these come tax time.   

 

You'll need to pay the following taxes on your NET EARNINGS, after subtracting your deductions:

  • Federal Income Tax

  • State Income Tax

  • FICA Tax (Social Security + Medicare)

Your 2018 Federal Income Tax bracket can be found here.

Your 2018 State Income Tax bracket can be found here.

 

The self-employed person's FICA tax rate for 2018 (January 1 through December 31, 2018) is 15.3% on the first $128,400 of net income and then 2.9% on the net income in excess of $128,400.  (In 2017 it was 15.3% on the first $127,200 and then 2.9% on the net income in excess of $127,200.)

IN SUMMARY

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You should now have a good idea as to what expenses can be deducted from your TOTAL GROSS EARNINGS as a ride-share driver.  You will use the 1099 forms (either 1099-k, or 1099-k + 1099-misc for referral bonus income) to assess your TOTAL GROSS EARNINGS.   Then you'll subtract your expenses, as outlined above, from your TOTAL GROSS EARNINGS. 

 

So, remember to add your DIRECT AUTOMOBILE-RELATED EXPENSES to your OTHER RIDE-SHARE DRIVING RELATED EXPENSES .   You will include both of these expenses on your SCHEDULE C 1040 TAX FILING FORM.   

 

You will have to pay the above mentioned taxes as a percentage of your NET INCOME.  NET INCOME is the income you earned after subtracting your deductions.

 

DISCLAIMER

This has been a generalized tax deduction tutorial for ride-share drivers, and it has only taken into consideration RIDE-SHARE DRIVING as your sole source of income.  If, in addition to driving for Uber and/or Lyft, you are also an employee at another job, then you'll also have to add that income (FORM W-9 from your employer) to your SCHEDULE C 1040 TAX FILING FORM.     You will most likely have had taxes taken out of your paychecks, so you'll want to fill out your forms accordingly.

Here, at MasterYourRide-Share.com, we do not claim to be licensed tax professionals.  Please use the tax information on this website at your own risk.   Tax rates and allowable deductions change from year to year.  The exact tax rates may be different from those posted on 3rd party websites that have been linked from this website. 

 

The IRS and applicable State Governments will issue tax forms to be used for filing taxes and exact tax bracket rates will be posted in those forms. 

Always seek guidance from a licensed tax professional to make sure you have accurately filled out your SCHEDULE C 1040 TAX FILING FORM.