All Uber drivers should know that when it comes to paying taxes to IRS, they are not considered an employee of the ride-sharing company. Instead, the US tax authority considers them to be independent contractors. This impacts not just the way the tax is filed but the amount of tax and exemptions that can be availed by the drivers.
If you have registered as a driver for Uber, you should know about the tax implications and the way that the tax is filed. While there are certain controversies regarding what should be the status of the Uber drivers, at the moment they are treated as an independent contractor.
In this article, we have listed seven essential tax tips for Uber drivers that will help you to correctly report your income to the IRS.
1. Tax Tips for Uber Drivers – Understanding Form 1099
As mentioned previously, the IRS regards Uber drivers as independent contractors instead of an employee. All independent contractors receive Form 1099 rather than W-2 that is sent to the employees.
The difference between an employee and self-contractor is that the latter provide independent services. A company does not have to withhold taxes of entities or persons who provide independent services. Since Uber drivers are considered independent contractors, Uber does not send Form W-2 but Form 1099 to the drivers. Instead, Uber sends two types of Form 1099s — 1099-K and 1099-Misc.
a. Tax Tips for Uber Drivers – Form 1099-K
All the payments from the customers are shown in Form 1099-K. The amount entered in Box 1a is the amount that Uber had collected from customers for rides that have been provided by the driver. The amount mentioned in this form is more than the driver actually receives since it includes the commission of the company and other expenses. Uber will provide you a separate tax summary report that you can use to file income tax report.
b. Tax Tips for Uber Drivers – Form 1099-Misc
Uber will send another form known as the Form 1099-Misc to the drivers. The form includes other types of payments such as non-driving related bonus payments. This income should also be mentioned by the Uber driver when filing income tax report.
Keep in mind that Uber is only required by IRS to send a 1099-K only when you have earned less than $20,000 or processed more than 200 transactions during a year. Moreover, the company is not required to send a 1099-Misc form if the non-driving income during a year was less than $600.
However, Uber sends 1099s to the drivers regardless of whether they have met the threshold or not. This is done to remind the drivers of the exact amount that they have earned and transaction processed during the year. All the drivers are required to report the income irrespective of not meeting the above thresholds. In other words, the drivers have to file the tax return file regardless of whether they have received Form 1099s from Uber.
2. Tax Tips for Uber Drivers – Understanding Schedule C
Uber drivers have to report the income to the IRS using Schedule C, Profit or Loss from Business. You don’t have to attach Form 1099s when submitting the Schedule C as Uber will send the information directly to the IRS.
Apart from income from the ride-sharing program, you can list all your related expenses. Some of the expenses can be deducted from the income. The amount that is left after subtracting business expenses from business is the profit or loss that should be entered in Form 1040 on line 12. The income amount should also be used entered in the Schedule SE that reports self-employment taxes for Social Security or Medicare.
As mentioned earlier, Uber lists total amount received from the customers including soft ride fees, tolls, and split fare fees. The amount can be listed in the expense section in Schedule C so that you don’t pay taxes on the amount.
3. Tax Tips for Uber Drivers – Details About ‘On-Trip’ Mileage
The tax summary received from Uber also contains a line named ‘On-trip’ mileage. This mileage represents the distance traveled with the passengers. You can use this information about mileage when calculating business expenses that must be deducted from the income.
Apart from the mileage reported by Uber, you can also claim expenses for the distance driven to ride requests, and also the distance drove after dropping the passenger and waiting for another passenger. In addition, the distance that you drove before the ride had been canceled by the passenger can be claimed. However, claiming the expense for these mileages require that you keep an accurate record.
4. Tax Tips for Uber Drivers – Calculating Business Expenses
Another important tax tip for Uber drivers is to know how to calculate the business expenses. Here are some tax tips for Uber drivers to calculate vehicle, mobile, and other types of expenses.
a. Tax Tips for Uber Drivers – Calculating Vehicle Expenses
You can calculate business expenses incurred in operating the vehicle in two ways.
- Use standard IRS mileage rate, which for the tax year 2017 is 53.5 cents per mile.
- Deduct the actual expenses incurred in operating the vehicle, including engine oil, gasoline, car registration, maintenance and repairs, lease payments, depreciation, etc.
Of the above two methods, the standard IRS mileage deduction tends to be higher. Moreover, it is also the easier to calculate. In order to find out the mileage expense, you should simply multiply the standard IRS mileage rate with the actual mileage driven. For instance, if you drove 5,000 miles during a year, the expenses will be $2,600 ($5,000 * $0.535).
An important tax tip for Uber drivers is that they should keep separate mileage records if they use the same vehicle for the ridesharing program and personal use. You are allowed to deduct taxes that you incur for the business use of the car, but not the personal use.
Also, one more important tax tip for Uber drivers is that they should keep proper receipts, mileage logs, and other documents. This tax tips for Uber drivers is important as the documentation and logs will be required to present as a proof to the IRS.
b. Tax Tips for Uber Drivers – Business Expenses Deductions
One of the most important tax tips for Uber drivers is that they can deduct mobile expenses from the income reported to the IRS. A mobile device is an important part of the ride-sharing-program. So, IRS allows mobile expenses to be deducted from the reported income.
The smartphone expenses that can be deducted by Uber drivers include the following
- Cost of the smartphone
- Carrier billing charges
- Any accessories that are used to operate the mobile expenses such as mounts, chargers, and cradles
An important tax tip for Uber drivers is that similar to calculating the vehicle expenses, they cannot deduct mobile expenses incurred for personal use. This is the reason that many Uber drivers buy a new mobile phone and use it exclusively for the business. This is an important tax tip for Uber drivers as it makes it easy to calculate mobile expenses made for business use.
c. Tax Tips for Uber Drivers – Other Types of Business Expense Deductions
An essential tax tip for Uber drivers is that a lot of other expenses can be deducted from the income. IRS allows deduction of the following business related expenses incurred by the Uber drivers.
- Business licenses and taxes
- Snacks, bottled water, and amenities for customers
- Freeway, highway, and bridge tolls
- Electronic toll transponder
- First aid kit
- Portable battery jump pack
- City and airport fees
- Roadside assistance plans
- Floor mats
- Tire inflator and pressure gauge
- Car tool kit
- Flares and flashlights
5. Tax Tips for Uber Drivers – Estimated Tax Installments
Uber drivers and other self-employed individuals don’t have to pay the taxes by April 15. Instead, the tax has to be paid four times in a year. The following deadlines represent payment due date for four quarterly tax payments in 2017.
|April 18, 2017|
|June 15, 2017|
|September 15, 2017|
|January 16, 2018|
In case you don’t earn any income prior to the end of the month before the month of the due date, you can skip a payment. If you don’t earn any income the following quarter, you can skip payment again, and so on. For instance, if you don’t earn any income from Jan. 1 to March 31, you can skip installment payment due on April 18. Similar is the case with other queer installment payments.
You can pay estimated quarterly taxes either by phone, mail, or online. The estimated installments should be paid if it is expected that the taxable income from the Uber’s ride sharing program will exceed $1,000. Uber drivers need to earn a profit of about $5,000 to 6,000 or more to owe this tax amount to the IRS.
Lastly, if you do not pay the estimated tax amount within the due date set by the IRS, you will have to pay a penalty. The penalty will also be paid if the estimated tax doesn’t correctly reflect the actual income earned to date. In order to avoid the penalty, you should pay the smaller of the amount in the following two situations.
- 100 percent of the tax paid in the prior tax period (110 percent in case of high-income taxpayer)
- 90 percent of the tax due in the current year
Keep in mind that high-income taxpayers include Uber drivers whose gross income during a year exceeds $150,000 for single individuals (or $75,000 for married individuals filing separately).
6. Tax Tips for Uber Drivers – The Deadline for Filing Taxes
For filing the electronic returns, the IRS has set different dates. Here is the expected 2017 tax year due dates and extensions for Uber drives and other self-employed contractors.
|· Jan. 23, 2018||· First Payment of Electronic returns for the tax year 2017|
|· April 18, 2018||· Deadline for submitting of 2017 tax returns|
|· April 18, 2018||· Extension of 2017 Federal Tax|
|· Oct. 16, 2018||· Deadline for 2017 Federal Tax Extension|
You will receive refunds, if eligible, within three months of filing the tax returns. You can check the IRS website online to find out if you are entitled to any refunds.
7. Tax Tips for Uber Drivers – Mistakes to Avoid When Filing Taxes
Tax time can be stressful for most people. That’s why it’s normal for mistakes to occur when filing the taxes. However, these mistakes can turn out to be costly as IRS imposes hefty fines for errors and mistakes in the submitted tax file.
Let’s take a look at the common mistake that Uber drivers should avoid at all costs when filing income tax return file.
a. Deduction of Personal Expenses
A lot of drivers deduct personal expenses from the business taxable income. This will obviously result in a fine. An important point to remember is that while certain personal expenses such as student loan charges, charitable contributions, and health coverage charge are deductible tax expenses, they should not be pooled as a business expense.
You can make allowable non-business related deductions in Form 1040, but not the Schedule C. Entering the allowable dedications in the wrong form can raise a red flag during an audit of your tax accounts resulting in a hefty fine.
b. Not Writing Off All the Allowable Business Expenses
Remember that there are a lot of different business expenses that you can deduct from the income earned from the ride sharing program. However, a lot of Uber drivers unknowingly fail to deduct these expenses from the income.
As mentioned previously, mileage is not the only expenses that you can deduct from the income. There are a lot of expenses such as car cleaning, cellphone bills, passenger expenses, and others that can be deducted from the ridesharing income. Not entering the expenses can result in losing out on significant tax savings.
c. Not Keeping Accurate Records
Another common mistake that a lot of Uber drivers make is that they don’t keep a record of all the expenses. Remember that you need to present proof of all the expenses that you are claiming. While Uber tracks the mileage, it does not record everything that is deductible in the income tax. So, not keeping your own record of the mileage and other business related expenses is a major mistake that could prevent you from availing maximum tax discounts. For mileage tracking, you can use the free Stride Drive app that is available on both Android and Apple store.
d. Not Deducting Commissions
A lot of Uber drivers don’t know that the commissions mentioned in the tax summary report sent by Uber are tax deductible. The commissions mentioned in the tax report are income of Uber. However, the company has to report this income to the drivers since it is a ‘third party network payment provider’ facilitating payments between passengers and the drivers.
Commissions can be deducted from the tax return that is filed by the Uber drivers. You should keep the Uber tax summary file in front of you when preparing the tax return file. Note down the actual income that was deposited in your bank account. All the fees that are mentioned in the tax summary account are your income, which you should include in your tax return file.
e. Not Properly Estimating the Tax Amount
When filing quarterly tax payments, it’s essential that you correctly estimate the tax amount payable to IRS. At this point, you should note that you won’t be fined if you enter more than the estimated amount. The excess amount will be refunded by the IRS when the actual income becomes known. However, if you don’t enter sufficient estimated income, you will end up paying a large amount as found to the IRS.
In order to estimate the tax amount, you should not just look at the current income but the past income as well. This will help you in calculating the correct estimated tax amount.
Summary Tax Tips for Uber Drivers – Checklist for Paying Taxes
- Make record of expenses and mileage
- Proper records can help you in claiming deductions
- Know about the allowable tax deductions
- You should know the expenses that can be deducted from the income. Contact a qualified accountant to find out the exact expenses that you can deduct to reduce the tax amount
- Ensure that the tax is submitted within the deadline
When preparing taxes, Uber drivers should take the special consideration of the points mentioned in the article. In case, filing taxes appear like a tough nut to crack, you can always avail the services of a professional accounting tax consultant.