Income tax mistakes and errors to avoid when a rideshare driver.
Driving for a rideshare or food delivery service can sometimes be an effect way to make a full or a side income to help pay the bills, but there are income tax implications. Find income tax mistakes to avoid, ways to minimize your expenses, and other things to be aware of if you drive for companies like Uber, Lyft, Grub, Postmates, or other rideshare companies. Always be aware of your expenses and time driving for a food delivery or rideshare company, as many drivers end up losing money (some studies show around 30-to 40% lose money) when factoring in their costs, including income taxes.
Always remember you do owe state or federal income taxes on the money you make from these services. You need to plan on and pay those taxes yourself as a 1099 contractor – the rideshare companies do not withhold that money from your payments. There are a few other mistakes easily made when you fill out your tax form, however. Here are tips on how to avoid those mistakes.
Don't rely on Uber, Lyft, Postmates or Grubhub to count your mileage
The Rideshare companies, like Uber and Lyft, keep track of how many miles you drive with passengers in your car. What it doesn't do is to keep count of the miles you drive when you drop off one passenger and pick up the next. That distance, expense on your part and time you spend can really add up, especially for more rural or suburban areas. The IRS, however, allows you to deduct those miles as a business expense.
You would miss out on a major source of tax savings if you neglected to pay attention to those miles between passengers. There are mile-tracking apps that let you count how many miles you drive in any given period of time, including Hurdlr, MileWiz, Gridwise, and TrackMyDrive. Many of those Rideshare apps give other benefits as well, such as tracking expenses in addition to mileage. Learn more on apps that help gig workers track mileage.
Don't lose those receipts
Mileage between passengers isn't the only thing you can deduct as a rideshare driver. You can deduct other business expenses as well. From floor mats to tool kits and car care costs such as oil changes or repairs, there are plenty of expenses you can get off your taxes. You do need those receipts as a rideshare driver, however.
The receipts not only help you keep track of everything you've spent, they help you prove to the IRS your expenses are genuine ones. If you don't keep track of these receipts as an Ubereats or other driver, however, you can still deduct at a flat rate of 54.5 cents for every mile you drive passengers.
Don't neglect to understand what business expenses you can write off
While it's a good idea to save those receipts, you need to know which receipts to save. Practically anything you spend on your rideshare business as an independent contractor can be written off. Car washes, the bottles of water to hand out to passengers as a Uber or Lyft driver, membership payments for roadside assistance, toll and parking, wireless plan for your cell phone and so on. It's important to familiarize yourself with the different expenses possible to deduct.
As a contractor, you will need to file a 1040 form with the IRS at the end of the year. Your rideshare expenses will need to be noted on the Schedule C of the 1040 IRS form. This is why it is imperative to keep your receipts – or if you use the standard deduction it may not be as critical, but see below. There is free tax software that can help too, including the IRS website and commercial software providers such as Quicken.
Get professional help completing and filing income taxes for driving jobs
Many people who drive for companies such as Uber, Lyft, Doordash or Grubhub have a low to moderate income and are working as a contractor to get extra cash. There are a number of free income tax filing services that help even “moderate” income families, and rideshare drivers (among other people) can get help completing and filing their state as well as federal taxes.
Highly trained volunteers and professionals meet with the low to moderate income client to answer questions. they help complete 1040, can analyze deductions or expenses listed on the Schedule C, and provide other guidance too. There are programs such as VITA and help from charities. Read more on free income tax preparation for lower income households.
You need to plan for and pay income taxes as a rideshare driver
This is often the #1 mistake of any contractor type job, whether driving for a rideshare company, working as a freelance writer, baby sitting as a contractor, or any job. If you are a 1099 contractor (not an employee of a rideshare company) you need to pay state and federal government income taxes. The money you receive from a rideshare company is not all yours – they do not deduct your taxes such as social security, Medicare (FICA), state or federal taxes.
The big takeaway is do not spend all of your money each time you get paid from Lyft, Uber, or other Rideshare companies. Save some of it for the quarterly or annual income tax payments that you need to make. The exact percentage will vary based on many factors (if you file as a household or individual), your total household income, deductions, whether you have children, etc. But it may be wise to put away anywhere from 10% to 25% of your rideshare income for future income tax liabilities.
Don't forget to make quarterly payments as a 1099 contractor
Technically, rideshare driving is a small business. Since you don't have an employer who will withhold taxes from your wages for you. You need to do your taxes and account for those costs yourself as you are a contract worker for Grubhub, Postmates, or Uber. Those companies do not withhold FICA, state or federal income taxes. As an independent contract, you are 100% responsible for tracking and paying those expenses on your own.
If driving is a side job and you fill out a W-4 at your regular job, you can change the withholdings to make sure your rideshare income is covered. If driving is your main job, however, you need to pay estimated taxes every quarter. There is a penalty for underpayment at the end of the year if you don't.
Don't deduct rideshare expenses twice
If the standard method is what you use to calculate your deductions (54.5 cents to a business mile), it's important to not deduct anything else in an itemized fashion. From gas and car maintenance to insurance and repairs, you can either do an itemized deduction or a standard one – you can’t do both. Whether you drive for both Doordash or Ubereats, do not double count expenses.
Bottom line on rideshare income taxes
Driving for a rideshare (such as Lyfy or Uber) or food delivery (including Doordash) can sometimes be a good way to gross a few dollars in an emergency. But you need to think about it as a business. As many drivers end up losing money when they account for income taxes, expenses such as car maintenance, and others. Or they make so little per hour it may be better getting a job somewhere else.
Filing your state and federal government income taxes can take time and effort, but it does need to be done right. Look out for many of those mistakes and potential errors we have listed above. Rideshare drivers can even get assistance filing and completing their tax forms from non-profits as well as the government.
Related Content From Needhelppayingbills.com
|
