Just like every other employee, drivers for companies like Uber and Lyft are expected to pay taxes. However, it is important to note that rideshare drivers are independent contractors compared to regular employees. It is therefore important to file for your income tax as an independent business owner. In this article, you'll get to know the steps involved in filing for income taxes as you read on.
Uber and Lyft provide their drivers with four types of documents. Uber provides four documents while Lyft provides three excluding 1099-MISC. These documents are needed for filing for taxes. Check below to know more about these documents in detail:
1. Tax Summary
The tax summary is generated on your dashboard when you log in. Every driver on the Uber app would receive a tax summary document. It contains a detailed breakdown of business-related deductibles and annual earnings. Fees, expenses, total online miles per annum, and taxes.
2. 1099-K document
This IRS tax document includes a detailed breakdown of gross earnings per annum. It is only given to drivers who have:
● Earned more than $20,000 in a year as related to customer payments. Although, this might be lower in some other states
● Completed a minimum of 200 rides or deliveries in a year.
To receive this IRS official document as an Uber driver, you must have received $600 or more as payments. You don't have to complete a certain number of rides or deliveries. It contains an overall summary of referrals you've gotten, miscellaneous payments, and promotions.
This is another document that states the summary of prizes, legal settlements, etc.
How To Know If You Qualify For 1099 Documents?
1099 documents are official IRS documents that include detailed information regarding tax bills. These documents have been discussed above. You'd know if you qualify for the 1099 documents when you check the requirements needed to be met. Check the section above for these requirements.
How To File for Taxes as a Uber or Lyft Driver
As a rideshare driver, whether full-time or not, it is important to know about the tax implications. In this section, you'll learn a step-by-step guide on how to file for taxes and stay organized when it comes to your taxes. Uber and Lyft do not regard their drivers as normal employees. They are regarded as an independent business contractor so they don't withhold taxes from their earnings. There are two types of taxes you must consider as a rideshare driver:
1. Self-employment Tax
This type of tax is fixed and essential for drivers who have earned a maximum of $400 from payments from customers. In the year 2021, self-employment tax was fixed at 15.3% of approximately 92.3% of net earnings. You could reduce tax bills by deducting business expenses from your net earnings.
2. Income Tax
This differs from self-employment tax because it does not have a standard rate. The amount of income tax you'd pay depends on the tax deductibles fees, your income, and tax bracket.
Steps in Filing Taxes for Uber or Lyft Drivers
Step 1: Estimate your gross income
As an independent business owner, Lyft or Uber may give you two 1099 forms which are the 1099-K and 1099-NEC. You may get the forms if you met the requirements needed. These forms may generate a higher income value than you received. This is as a result of tax-deductible fees.
Step 2: Get rid of Tax Deductibles to Reduce Your Tax Bill.
Your 1099 forms would only show a total of payments received from customers before Uber or Lyft removes their fees. It is important to note that if these fees are not removed, they could increase your tax bills. You can write off the following expenses from your business income;
● Mileage: This is a summary of miles traveled for business purposes, on trips, and miles driven after a passenger have been dropped off.
● Uber or Lyft service fees: deduct Uber or Lyft charges from your net income.
● Supplies and Car wash: At some point, the car might need a wash or a few supplies. Deduct these charges from your net earnings.
● Cellphone charges: If you use your phone for business only, you can deduct cellphone charges and data plans.
● Equipment: If you purchased equipment, such as cameras you use to record your driving, you can also deduct those charges.
These expenses should be entered on part two of Schedule C.
Step Three: Estimate your Profit and Losses
Calculate your profits and losses from the ride-sharing business.
Step Four: Rideshare tax calculator
Self-employment tax is an additional tax that is used to fund Medicare and social security to the Federal Government. To report your profit to the IRS, file for Schedule C and attach it to Form 1040.
As always, Lunafi is here to make taxes easier.
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