Uber, Lyft, Sidecar and all those in between!
As an Lyft, Uber, Sidecar, or any other car sharing service provider you are most likely not an employee of their company. Drivers for these companies are usually independent contractors, a fact that has tax implications, both at filing time and year-round.
Being an independent contractor means that you're self-employed. As far as the ride-share company is concerned, you're the owner of a separate business that it uses to provide driving services. So when you receive a payment, understand that it's not a traditional "paycheck," and likely no taxes have been taken out.
It's up to you to take care of federal and state income taxes, as well as Social Security and Medicare. Combined, these taxes can easily reach 30% to 50% of your income, so make sure to set aside money to pay them.
If you're accepting ride-sharing fares more than occasionally, you may be required to file quarterly estimated income taxes. At tax-filing season each spring, you'll be reporting your self-employment income and expenses on Schedule C, as well as filling out Schedule SE for self-employment tax if your net income from the work is greater than $400.
Tax deductions for your car
Since you're an independent business owner, just about any money you spend on your gig as a ride-share driver will be a tax-deductible business expense. The first thing that probably comes to mind is your car. There are two ways to take a deduction for the business use of your car:
• Deduct the actual expenses of operating the vehicle for business, including gas, oil, repairs, insurance, maintenance and depreciation or lease payments.
• Take the standard IRS mileage deduction. As of 2016, the rate is 54 cents per mile driven for business use.
If you use your car for both ride-sharing and personal transportation, you can deduct only the portion of your expenses that apply to the business use. And whichever type of deduction you claim, it's critical that you keep thorough records. The IRS could disallow any tax deductions you can't support with:
• Mileage logs
• Any other documentation
• Other tax deductions for ride-share drivers
Commissions you pay to the ride-share company are a business expense, as is any cost you may have to pay for technology installed in your car. Other tax deductions include:
• Water, gum or snacks for passengers
• Tolls and parking fees
In addition, ride-sharing companies typically require use of a smartphone.
• The portion of your mobile phone expenses attributable to your ride-share work can be used to reduce your self-employment income.
• For simplicity's sake, it may make sense to have a dedicated phone for work.