As an Uber driver, you’re an independent contractor, not an Uber employee. The difference is huge, especially at tax time. Follow these tips to report your income accurately and minimize your taxes.
Working for yourself
If you’re one of the thousands of people who started driving for Uber this year, it might be the first time you’ve been your own boss, setting your own hours and making countless decisions to improve the performance of your business. It also might be the first time you’ve had to report self-employment income on your tax returns.
Understanding your Uber 1099s
As far as Uber is concerned, you’re an independent contractor who provides a service, not an employee. That’s why Uber does not withhold taxes from your payments. It’s also why the company reports your earnings on 1099 forms, rather than on a W-2.
Most Uber drivers receive two Uber 1099s:
- Form 1099-K reports the total amount your passengers paid for the rides you provided. This includes all the money you collected from passengers, including the Uber commission and other fees. As a result, the amount shown on Box 1a of the form is greater than the amount you actually received. However, you can usually deduct the additional fees as business expenses, so you pay taxes only on what you earned.
- Form 1099-MISC provides an accounting for any other income you’re paid, including referrals and non-driving-related bonuses.
The IRS rules do not require Uber to issue a 1099-K if you processed fewer than 200 transactions or earned less than $20,000 in payments. Likewise, Uber is not required to provide a 1099-MISC if your non-driving income was less than $600.
Fortunately for Uber drivers, the company provides 1099s in both cases, even if you do not meet the thresholds. Uber does this to remind you to report your ridesharing income and to make it easier for you to do so. If, for some reason, you don’t receive a 1099, you are still required to report your ridesharing income to the IRS.
Using Schedule C
You will most likely report the income from your 1099s on Schedule C, Profit or Loss from Business. Since Uber reports this income information directly to the IRS, you do not have to include the actual 1099 forms with your tax return. Schedule C can also be used to list your business-related expenses.
- When you subtract your business expenses from your income, you will enter the difference—known as the business income or loss—on line 12 of Form 1040.
- This income amount is also used on Schedule SE, in calculating your self-employment taxes (for Medicare and Social Security).
To get you off to a good start with your business tax deductions, Uber provides you with a tax summary that breaks down the totals of both your 1099-K and 1099-MISC. The tax summary shows the total amount your passengers paid for Uber commissions as well as other fees, such as tolls, safe ride fees, and split fare fees. You can list these commissions and fees as business expense deductions on Schedule C so you do not pay taxes on them.
Deductions for mileage and the business use of your car
The Uber tax summary also includes a line for “On-Trip” mileage, which also can be used to calculate additional deductible business expenses. However, Uber’s on-trip mileage covers only the mileage driven when passengers were in the car.
You can also claim any other business-related mileage, such as the mileage you drove to ride requests, the mileage you drove after dropping off the passengers if you are waiting for another ride, and the mileage you drove before rides were canceled. However, you must keep careful records of you off-trip mileage.
There are two ways to calculate the business use of your car:
- You can deduct the actual expenses of operating the vehicle, including gasoline, oil, insurance, car registration, repairs, maintenance, and depreciation or lease payments.
- Or you can use the standard IRS mileage deduction. For the 2016 tax year, that rate is 54 cents/mile of business use.
The standard IRS mileage deduction usually produces the higher deduction, and it’s definitely the easiest option. You simply multiply your total business miles by the IRS rate. Example:
- You drove 10,000 miles.
- Your expense equals $5,400 (10,000 X $.54 = $5,400).
If you use the same vehicle for both your ridesharing business and your personal transportation, you must keep accurate records to separate the two uses. You are allowed to deduct only the expenses that apply to the business use of your car. The IRS can disallow any business expenses you can't support with mileage logs, receipts, or other documentation.
Deductions for mobile phone expenses
Your smartphone is essential to your business, so naturally its expenses are deductible. This can include:
- The cost of the phone itself
- The billing charges of your carrier
- And any accessories that are essential to your business, such as chargers, mounts, and cradles
As with your car, you are only allowed to deduct the portion of your smartphone expenses that are related to your business use. For that reason, many Uber driver-partners purchase a new phone and dedicate it solely to their business. That way, 100% of all costs associated with that phone are deductible from their taxes.
More tax deductions for Uber drivers
Almost anything you spend on your ridesharing business will qualify as a tax-deductible business expense. This includes the business use of your car and mobile phone, but it can also include:
- Bottled water, snacks and amenities for customers
- Business taxes and licenses
- City and airport fees
- Freeway, highway, and bridge tolls
- Electronic toll transponder
- Floor mats
- Car tool kit
- First aid kit
- Tire inflator and pressure gauge
- Portable battery jump pack
- Flashlights and flares
- Roadside assistance plans
- Office supplies
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