When you drive for a rideshare service like Uber, you are on their payroll as an independent contractor, i.e. someone who provides a service, not an employee. This also means that Uber does not withhold taxes from your income throughout the year, which could land you with a hefty sum to pay the IRS come Tax Day. The good news is that there are also areas where you can track your tax-deductible business expenses.
There are several benefits to being self-employed, including setting your own hours and simply being your own boss. However, there are other implications of being in charge. In addition to our many tax-related services, Paramount Tax Relief in Sacramento can help you feel better prepared for what this tax season may mean for your wallet.
Preparing for Tax Day
Before April arrives, it is crucial to budget properly. If you are self-employed, you alone are responsible for covering federal and state income taxes. As these can reach nearly 30% to 50% of your income when combined with Social Security and Medicare, you will want to make sure that you set aside the funds to account for this. Depending on how often you are logging into the Uber app and how much you are making from it, you may be required to file quarterly estimated income taxes.
Understanding Your Tax Documents
Depending on how much you earn from Uber, you may receive one or two 1099 forms, as opposed to the standard W-2.
- 1099-K will account for the total amount you earned from transporting passengers.
- 1099-MISC will account for other income such as bonuses not related to driving (tips, cancellation fees) and/or referrals.
You may not receive a 1099-K at all in the event you had less than 200 transactions or earned less than $20,000. Additionally, you won’t get a 1099-MISC if you earned less than $600 in non-driving income. Regardless of whether Uber issues you these forms, you are responsible for reporting to the IRS and paying taxes on all income.
It is likely that you will report your income from these 1099 forms on a Schedule C, Profit or Loss from Business. As your car is part of your business when you drive for Uber, the IRS allows for deductions. You can deduct for expenses associated with operating the car (gas, oil, maintenance, depreciation, etc.), as well as the standard IRS mileage deduction (58 cents in 2019). It is important to note that you can only account for such deductions directly associated with your business, i.e. when you are driving for Uber not during personal use, so you will want to keep thorough records and documentation.
You can also deduct for any snacks or beverages you provide for your riders, tolls and parking fees, as well as any use of your smartphone associated with Uber. Some experts recommend having a separate phone dedicated specifically to ridesharing, like a standard work phone.
Learn More From Paramount Tax Relief in Sacramento
At Paramount Tax Relief, we take pride in assisting our clients, and our testimonials attest to our diligence in doing so. Our professionals are here to help with any of your tax queries, so don’t hesitate to contact us today for more information on what ridesharing means for this tax season.