Uber Tax Checklist & How to File Uber Taxes

Blog shared from www.microsoft.com

As more people become rideshare drivers, we often hear the question, “How do Uber drivers pay taxes?”

In this post, we’ll provide an Uber driver tax checklist that lets you know your tax liability, as well as some tax tips and deductions. While this is focused on Uber, many of these tips are applicable to Lyft and other rideshare drivers.

• Know what taxes you have to pay
• Uber will file IRS Form 1099-MISC and/or 1099-K with the IRS and your state tax agency if you were paid over $600 during the year
• Be ready to pay estimated quarterly taxes
• Keep track of your miles and expenses
• The mileage deduction can save you major dollars at tax time but only if you have proper records
• Know what deductions you can take
• File the proper tax forms

Yes. When you drive for Uber, you are regarded as an independent contractor, not an employee. This means you’ll receive a 1099-tax form at the end of the year-employees receive a W-2.

Being an independent contractor can have a major impact on your tax bill. It can also have an impact on what deductions you can take to lower your tax liability.

While there are some legal challenges on whether Uber drivers should be employees, they will continue to be classified as independent contractors for the foreseeable future.

Uber drivers are described as self-employed “partners” and fall under 1099 tax rules. For driver services, this falls under 1099-K rules and any other payouts would land under the 1099-MISC rules. These other payouts could include referral fees, bonuses and more. You can procure your needed Uber tax information by logging into your Uber partner portal.

Uber classifies its drivers as independent contractors. An independent contractor is a non-employee who is running their own business. Uber doesn’t provide you with any employee benefits like health insurance or vacation. It also doesn’t withhold any taxes from your compensation.

Every year, Uber will file IRS Form 1099-MISC and/or 1099-K with the IRS and your state tax agency reporting how much it paid you. This applies if you were paid over $600 during the year.

You need to report this income on your tax return and pay income tax and self-employment tax (Social Security and Medicare tax) on the net profit you earn from your ridesharing business. Of course, you can deduct certain business expenses.

For the majority of you, the answer is “yes.” If your net earnings from Uber exceed $400, you must report that income. You should file a Form 1040 and attach Schedule C and Schedule SE to report your Uber income.

If you’re not required to file an income tax return and your net earnings from Uber are less than $400, you aren’t required to report your Uber income.

Let’s say you are a sole proprietor. It’s how the vast majority of self-employed people, including Uber drivers, operate their businesses.

When you’re a sole proprietor, you and your business are one and the same for tax purposes. You don’t pay taxes or file tax returns separately for your sole proprietorship. Instead, you report the income you earn on your own personal tax return, IRS Form 1040.

To show whether you have a profit or loss from your sole proprietorship, you file IRS Schedule C, Profit or Loss From Business, with your return. On this form, you list all your business income and deductible expenses. You only pay tax on the profit you have left after you subtract all your expenses from your business income.

When you’re a sole proprietor, you must pay self-employment taxes on your net income. You have to also pay your income taxes, too. This is so even though you are of retirement age.

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Self-employment taxes are the Social Security and Medicare taxes sole proprietors pay. When you’re an independent contractor, you have to pay all your Social Security and Medicare taxes out of your own pocket.

Uber won’t pay half of them for you (employers must pay half of these taxes for their employees, but not for contractors). These taxes are substantial: the Social Security tax rate is 12.4 percent and your Medicare tax is 2.9 percent on the first $128,400 of your covered wages but you are able to deduct the employer portion. You file IRS Form SE with your tax return to report and pay these taxes.

It’s very important for you to keep track of all the deductible expenses you incur throughout the year since they will decrease the amount of profit you’ll have to pay tax on.

Since your business is driving, your biggest deduction will be your car expenses. You can deduct these expenses in one of two ways: you can use the standard mileage rate and take a mileage deduction. Alternatively, you can deduct your actual expenses like gas, repairs, depreciation, lease expenses if you lease your car, etc.

The standard mileage rate is the most popular because it requires less record keeping. Whatever method you use, it is vital that you keep track of your business mileage. You can use a mileage tracking app like MileIQ or an old-fashioned paper mileage log, which requires quite a bit of manual work.

Yes, most Uber drivers should be able to use the Section 199A deduction to deduct up to 20% of their business income.

You can deduct car expenses like the standard mileage rate or the actual expenses. It’s very tough to write off something like a full car payment or lease, though. That’s because the IRS will (rightly) question if it’s being 100 percent used for business.

Other deductions for an Uber driver would typically include:

• The cost of your iPhone or other cell phones (100 percent deductible if you use it just for business, otherwise you can deduct the business use percentage)
• Water, candies, gum and other items you provide your passengers
• Any extra insurance coverage you obtain for your business
• Fees and commissions Uber charge you (however, don’t deduct any fees Uber takes directly from your pay and doesn’t include in the compensation listed on your 1099 form)
• Home office deduction: You can qualify for this valuable deduction if you use a portion of your home exclusively for record-keeping and other administrative tasks for your ridesharing business
• Parking and tolls
• Interest on a car loan, if you use the car for personal and business use, the business use percentage is deductible on Schedule C
• PayPal and credit card transaction fees you pay

You need to keep track of all of these and any other expenses you incur for your ride-sharing business. There are many accounting and tax preparation apps and software you can use to keep track of your expenses. You can even prepare your tax return yourself.

Self-employed people are not allowed to wait until April 15 to pay all the income and self-employment (Social Security and Medicare) taxes they owe for the prior year. Instead, they are required to prepay their taxes by making estimated tax payments to the IRS four times per year.

You must pay estimated taxes if you expect to owe at least $1,000 in federal tax for the year from your ride-sharing business. You’ll probably need to earn a profit of at least $5,000 or $6,000 from your business to owe this much tax.

The IRS imposes modest interest penalties if you don’t pay enough estimated tax. To avoid the penalties, you must pay at least the smaller of:

• 90 percent of your total tax due for the current year
• 100 percent of the tax you paid the previous year or 110 percent if you’re a high-income taxpayer

High-income taxpayers-those with adjusted gross income (AGI) of more than $150,000 ($75,000 for married couples filing separate returns)-must pay 110 percent of their prior year’s income tax.

The estimated tax must ordinarily be paid in four installments: April 15, June 15, September 15, January 15 (of the following year). Remember, you don’t have to start making payments until you actually earn income.

If you don’t receive any income by March 31, you can skip the April 15 payment. In this event, you’d ordinarily make three payments for the year starting on June 15. If you don’t receive any income by May 31, you can skip the June 15 payment as well and so on.

You can pay by check, electronic payment, or even by credit card (but if you pay by credit card, you must pay a service fee to a private company). For details, check out IRS Publication 505, Tax Withholding and Estimated Tax.