Driving for Uber or Lyft has the benefits of being self-employed, however it also comes along with the responsibilities of owning your own business. The IRS treats Uber and Lyft drivers as businesses which then has separate filing requirements when it comes to tax. Unlike employees and wage earners who pay income taxes though their paycheck, Uber and Lyft drivers might have the requirement to make estimated quarterly tax payments since there is no tax taken from payments received by Uber or Lyft. Failure to make required estimated tax payments could result in penalties. We have compiled a few tax tips that will help make it easier when it comes time to file your taxes to help avoid penalties and make the filing process smoother.
Tax Tips for Uber and Lyft Drivers
- Download some type of mileage tracking app. The biggest deduction you can have on your tax return for Uber or Lyft is mileage, and you will want to take full advantage of it. Both Uber and Lyft only track the miles that you have passengers inside your car, however you are allowed to deduct the mileage you travel after you drop off one passenger and go to pick up the next passenger. This is where a mileage tracking app can help you keep track of those miles! We recommend Mile IQ as it is very user friendly and easy to use. Use our link to get 20% off your annual subscription (which is tax deductible). Download the app and follow the instructions on how keep track of your business miles aka Uber or Lyft miles. Stay on top of the app, so when it comes tax time you can use the mileage statement to claim all the mileage Uber or Lyft did not keep track of.
- Use your Uber or Lyft tax summary and 1099 on your Tax Return. The 1099 and tax summary given by both Uber and Lyft has a lot of important information that you will need when it comes time to file your tax return. You will use the 1099 given to report the amount of income your received by Uber or Lyft and the tax summary for some deductions you are entitled to. On trip mileage, service fee, airport, and bookkeeping are all deductions that you can use on your return to offset the income you received.
- Make Estimated Quarterly Tax Payment. You are required to make estimated quarterly tax payments to the IRS is you expect to owe at least $1,000 for the year. A profit of about $5,000 to $6,000 from Uber or Lyft, will cause most people to meet this requirement. Estimated taxes are paid when the income is earned and are due April 15th, June 15th, September 15th, and January 15th (of the following year). However, if you don’t receive income by March 31st, you can skip the April 15th The easiest way to make these payments are on the IRS website, however you can also make payments by submitting a check to various addresses depending upon where you reside. Keep in mind depending upon which state you reside, you may also have a requirement to make estimated quarterly tax payment with them as well.
- Use the Mobile Phone Deduction. Another big tax deduction Uber or Lyft drivers can claim is their mobile phone expense. As the phone is an essential part of the business, the portion of your phone bill that is allocated to business use is deductible. Since most people use their personal phone to drive with Uber or Lyft, only a portion of the phone bill is deductible.
- Keep track of your Expenses on Supplies. Some Uber or Lyft drivers purchase supplies such as water bottles, snacks and other amenities for their passenger. Those expenses can be deductible on your tax return, however you won’t know how much unless you keep track. You can use simple spreadsheets or bookkeeping software (which is tax deductible) to help. If you are purchasing supplies you will definitely want to take advantage of the deduction on your tax return.
Driving for Uber or Lyft comes with some responsibilities that are key to understanding as soon as you start driving. With the help of these simple tax tips hopefully you will be able to make sure you don’t run into tax issues with the IRS or state revenue agency. If you have any questions or concerns don’t hesitate to call your tax professional at EA Tax Resolutions .