Uber drivers and other ride hailing apps have drivers signed under them; but the riders are not Uber employees. Rather, they work as independent contractors. The difference lies in a lot of the terms, and one of the most obvious is tax time.
The fact that you are an independent contractor means that there are tax implications when you file your tax. When you receive your payments, they do not come with tax already deducted. This means that you need to sort out your state and federal income tax, as well as Medicare and your Social Security. When you add up these taxes, the figure can eat up to 40 – 50% of your income.
It is quite easy to forget that taxes have not been deducted from your income, and get excited at the seemingly sizable figure. Ensure to set aside enough money to clear off your taxes and other bills.
Consider Tax Deductions for your Car
You should think of yourself as an independent business owner; and any money you spend on maintaining your ride hailing gig is considered a tax-deductible expense. If you follow the right steps, you will be able to get a deduction for your car.
The first things that come to mind when thinking about expenses of running a ride hailing business is the cost of fuel, gas, servicing the vehicle, repairs, and insurance among other things. Make an estimate of your costs, and deduct the expenses.
You can also file claims for deduction based on mileage; like the distance you drove to pick up a passenger, or the mileage you drove before a passenger cancelled a ride.
It is important that you create a workable system where you can differentiate between your records for your personal usage, and your business trips. If the IRS discovers any records that cannot be accounted for with receipt or mileage backing, there will be fines.
Mobile Phone Deductions
Your ride-sharing business works together with your smartphone, and it naturally incurs expenses. The expenses that come with a mobile phone includes the cost of purchasing the phone itself, bills from your carrier network, and other accessories that are necessary for using a smartphone such as chargers, car stands for phones, and headphones.
Just like you would deduct only business expenses in relation to your car, your phone deduction follows the same rules. If you are using the same smartphone for personal and business purposes, it is important that you properly differentiate between business and personal usage. However, the smarter choice would be to purchase an altogether new device, and use it for the sole purpose of your business. This way, all costs that come from that phone would be deductible from your tax.
Other Tax Deductions
As a ride-sharing business person, almost everything you spend during the course of your business can be written down as tax-deductibles. These are not just limited to your mobile phone and car maintenance expenses, but also include:
- First aid kit for your vehicle
- Airport and city fees
- Snacks, water and other such consumables for customers.
- Toll fees and highway fees
- Roadside assistance plans
- Pressure gauge and tire inflator
- Emergence flares and flashlights
An Uber tax summary is an annual breakdown of all expenses and earnings which may be deductible. By January 31, 2021, Uber drivers would receive an Uber tax summary on their driver dashboard.
Uber does not provide tax related advice, and it is advisable that Uber drivers seek counseling and relate all possible questions to qualified tax services such as TurboTax, or some other reputable and qualified independent tax professional.