Driving for a rideshare app like Uber, Lyft, and DoorDash is a great way to put income in your pocket. Rideshare drivers are considered self-employed, which means you are responsible for reporting your income and paying self-employment taxes. You can deduct business-related expenses, but you must keep records of earnings and expenses to meet your tax obligations. Whether you treat it like a side gig or your full-time job, here are five tax tips to make sure you have a smooth experience at tax time.
1. File quarterly estimated income taxes
When you work as a rideshare driver for Uber and Lyft, you are technically a small business owner. That means no one else is withholding wages from your paycheck for income taxes. Additionally, you are required to pay Social Security and Medicare (FICA) taxes on your earnings. All rideshare income, including tips, is taxable.
If you work entirely for yourself, you are responsible for paying quarterly estimated tax to avoid penalties for underpayment. If driving is your side-gig and you work a second job where you filled out a W-4, you might adjust your withholding percentage to cover your rideshare income.
2. Keep track of your mileage and save receipts
Uber’s app will keep track of the miles you drive with passengers in your vehicle, but you can also claim the distance traveled to get from a drop-off location to where your next passenger is waiting. You can still rely on Uber for a portion of your business miles but consider using a mile tracking app as well to make sure you’re getting all your deductible miles counted.
As a rideshare driver, there are certain expenses you can deduct in addition to mileage. If you use the actual method for calculating your business expenses, you’ll need receipts that back up your claims. To use the actual expense method, you need to calculate how many miles you drive for business compared to your total mileage. Once you know that percentage, you can deduct the portion of your expenses like gas, oil changes, repairs, tires, insurance, registration fees, licenses, and depreciation that are attributable to your business use. If you don’t keep track of your receipts, you can always take the standard method, which allows you to deduct a flat rate per business mile for all driving-related expenses. Still, you must track your mileage closely to make sure you are getting your maximum deduction. If you can’t provide records, the IRS might question your expenses, and you could be on the hook for back taxes and penalties.
3. Take any available rideshare tax deductions
Mileage is the most obvious deduction that a rideshare driver can take. For mileage, you can either deduct $0.70 per business mile driven or use the actual expense method to calculate and deduct a percentage of fuel costs, maintenance expenses, and auto insurance.
Other common operating expenses you could deduct, if you are not using the standard method, include your cell phone and wireless plan, tolls and parking, and memberships for roadside assistance. Vehicle depreciation may be claimed, along with partially deductible registration fees depending on your state. Car washes and parking fees or tolls incurred while on the job are also deductible.
4. Make sure you only deduct expenses once
If you use the standard method for calculating your deduction, you should not be deducting itemized expenses in addition to mileage. Itemized costs include things like car washes, gas, maintenance, depreciation, fees, insurance, repairs, oil, tires, registration, or lease payments. The standard method accounts for these and allows you to deduct a flat rate. Writing off these individual expenses when you use the standard method is actually double-dipping. You could wind up with a big penalty from the IRS if you are caught. For example, if you drove 5,000 miles for Uber this year, you can calculate your mileage deduction by multiplying your miles by the rate for the year. For example:
3,000 miles x $0.70 = $2,100 deduction.
Make no mistake – the #1 best thing you can do for your taxes as a rideshare driver is to file with TaxSlayer Self-Employed. Get all the credits and deductions you deserve – plus the one-on-one support you need for your unique situation.
5. Understand your tax forms
As a rideshare driver, you typically file your tax return using the following tax forms:
- Schedule C to report your business income and expenses, since you are considered self-employed.
- Schedule SE to calculate your self-employment tax.
- Form 1099 will come from the rideshare company you work for, which details your earnings for the year.
