Posted by Larry Hurt

Tax Tips for Lyft and Uber Drivers: Major Things to Know in 2020

Tax Tips for Lyft and Uber Drivers: Major Things to Know in 2020

With precautions and careful consideration during the Coronavirus Pandemic, many people all over the country are still turning to ridesharing to bring in extra income with apps like Uber or Lyft. For everyone driving, using these apps, full time or part-time and still trying to earn an income during these hard times, you, too, need to know about your tax obligation.

It is quite different when compared to the past tax filings made as a regular W2 employee. As a result, we discuss simple tips to help with your taxes.

Consider Yourself an Independent Contractor

All regular employees get a W-2 form. Your tax will automatically be paid when you receive your income. For independent contractors, however, you get form 1099, and you need to hand over your tax to the IRS.

Uber and Lyft drivers can be grouped as independent contractors. Never forget this, especially when it comes to paying taxes. 

Know Your Rideshare Tax Forms 

The rideshare app you use (Uber, Lyft, and others) will give you the 1099 form like other freelancers and independent workers. The driver's dashboard on the app will provide you with all info you need, including an official 1099 form from the company.

For people with more than 200 transactions (rides), they will get Form 1099-K in their mail. This applies to those that generated more than $20,000 from customers paying for the trip.

Even if your ride is fewer, you will also get a 1099-K form from the rideshare company. If you did not make many earnings to be eligible for a 1099 form, you still need to report your income and pay taxes on it.

1099 form most time gives a breakdown of what customers paid, alongside what the rideshare company took as commission. This amount must also be reported as income, even though you can deduct the fee as business expenses.

Tax Deductions for Uber and Lyft Drivers

Bear in mind that to the IRS, you are a business owner operating a rideshare business. What this translates to is the opportunity to deduct business expenses for you to determine the real income from ridesharing.

There are significant business expenses that accompany Uber and Lyft driving. Be sure to have a record of the miles you drove alongside other costs to get some tax savings.

You will get a 1099-K form, which will come with all customer payments, and it will not exclude the service fee deducted by Uber or Lyft. These fees can be deducted as business expenses paid to the platform to ensure you are not paying tax on what you did not get.

Alongside your rideshare app fees, there is also the opportunity to deduct mileage expenses (actual car expenses). You can either claim the actual costs for the maintenance and gas cost or the IRS' standard mileage deduction.

The standard mileage reimbursement rate was set at 58 cents per mile in 2019. for every mile driven for business purposes in the year, you can claim the amount. The standard mileage deduction gives higher tax savings for drivers.

these are the actual expense you can take for operating your business if you do not like the standard mileage deduction route:

  • Car insurance

  • Maintenance costs

  • Oil and gas cost

  • Repair bills 

  • Depreciation or lease payment 

To calculate the mileage deduction, multiply 58 cents by the mileage driven for business. It is not restricted solely to the mileage driven for business, but miles you drove to pick up customers or to move from a ride request to the other.

These miles should be appropriately recorded because the IRS can dispute and neglect mileage claims without substantial evidence.

There is also the opportunity to claim parking fees related to your Uber or Lyft business. This does not matter if you use either the actual car expense or standard mileage deduction. You can also claim tolls customers did not pay as business expenses.

Also, there are other business expenses a rideshare driver can take. These are:

  • Charges and bills from the mobile device company, including data plans, charges for using the app and dashboard mounting.

  • Snacks and water offered to passengers

  • Other vehicle items like first aid kit, battery jumping device, tire maintenance equipment, floor mat, and flares.

  • Electronic toll payment equipment

  • License fee ad business insurance

  • Roadside assistance subscription

if you are a sole proprietor driving for Lyft or Uber, you also may be able to claim qualified business income deduction. With this, you can deduct up to 20% of your earnings since you are working as an independent contractor.

Larry Hurt
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