Rideshare Drivers: Records to Keep for Tax Season
People who work as a driver for Uber, Lyft, or other ridesharing services, are considered self-employed. A self-employed person is responsible for handling and paying income taxes and self-employment taxes. Self-employment taxes consist of Social Security and Medicare taxes.
As a self-employed person, you will receive either a 1099-K or 1099-MISC from the rideshare company, stating how much you earned during the year. That amount plus any other tips is self-employment income, which must be reported with your 1040 tax return. You can reduce gross earnings by keeping track of business expenses. These expenses can be claimed as tax deductions when you file your tax return.
Expenses to Track
Keeping good records will allow you to take all the tax deductions to which you are entitled.
The biggest tax deductions for drivers are the costs related to your vehicle. There are two ways you can deduct these on your return:
- You can take the standard mileage rate of $0.575 a mile for the 2020 tax year (most common).
- You can track actual car expenses based on the percentage you use your vehicle for business purposes.
For the standard mileage deduction, you can deduct any miles that aren’t commuting miles. In other words, you can deduct miles in between customer pick-ups. You cannot deduct miles driven from your home to the first pick-up, or from the last drop-off back to your home, as these are personal commuting miles.
If you chose actual vehicle expenses, you need to determine the portion of expenses that can be attributed to business use. The deductible expenses with this method include gas, repairs, insurance, and vehicle depreciation. This method is complicated, so you may need to hire a tax professional.
With either method, you can include costs for parking, tolls, or tax paid for car registration as operating expenses.
Common operating expenses for drivers, allowed for either method, include:
- Fees and commissions in the app (often found on your driver dashboard)
- Accessories such as chargers, cables, and mounts
- Snacks and refreshments for passengers
- Portion of the cost of phone and phone plan used for driving
- Any mileage tracking software or electronic toll transponder
For a business expense to be deductible, it must be both ordinary and necessary for your business. An ordinary expense is one that is common. A necessary expense is one that is helpful.
There are several ways to facilitate the tracking of expenses. The mileage deduction will be your largest deduction. Keep a mileage log so that you can get the maximum deduction and provide written evidence if your tax return is audited by the IRS. Using a separate bank account for driving is another way to succinctly track business expenses. Finally, the driver dashboard from the app often includes online miles which qualify as business miles. It also includes fees and commissions which qualify as operating expenses.
When tax filing season comes, you can add your self-employment income to your return. Then, you will create and attach a Schedule C to that income. Your Schedule C will include the vehicle and operating expenses. It will also include basic information about the business, such as the business code. The IRS business code for rideshare service drivers is 485300 Taxi & Limousine Service.
For more information please visit https://www.eitcoutreach.org/rideshare/tax-deductions-for-rideshare-uber-and-lyft-drivers/