For Uber drivers in the US, we know what tax time means. Tax time means you fall into one of two buckets: (1) Getting a refund check or (2) paying the U.S government money owed. The way you file your taxes, how you have managed your expenses and your income for the preceding year largely govern which bucket you fall into.
In our attempt to write an article that is thorough and backed with knowledge from tax industry experts, we did two things: (1) provided links to existing websites with very relevant Uber Tax information, and (2) we interviewed 3 tax experts (Andrew Poulos, Micah Fraim, and Anil Melwani) with over 40 years of experience. Please continue reading to learn more about your Uber Taxes:
You Are the Boss:
When you are an Uber driver, you are the boss (an independent contractor of Uber). An Uber driver is not an Uber employee, and as such has to pay his/her own taxes. As mentioned in this article, “Uber classifies its drivers as independent contractors [or self employed individuals]”. This is why you receive a 1099K and/or 1099 Misc and not a W2 when you work with Uber.
Andrew Poulos says, “A self-employed person is required to pay federal and state income taxes, which they would pay even if they were an employee. The difference in being self-employed is the person is responsible for paying 15.3% FICA taxes, which is 7.65% for the employee portion, and 7.65% for the employer portion”.
FICA Taxes “… are the Social Security and Medicare taxes sole proprietors pay. When you’re an independent contractor, you have to pay all your Social Security and Medicare taxes out of your own pocket … a flat 15.3 percent tax on your first $118,500 in net self-employment income (in 2015). ” – See more information here
Tax Deductions – Standard or Itemized?
The way you take tax deductions can impact how much you receive from the Government as a refund, or how much the IRS determines you owe the Government. You can either track your car mileage, or take actual deductions of expenses directly attributable to your Uber business. Before deciding what expense method to follow, realize that you cannot reverse it in any subsequent years- as Anil Melwani puts it, “once one of the methods is chosen you must stick to that method for the life of the vehicle”.
Also realize that there is no clear cut way to select which expense method to follow for your taxes: Andrew Poulos says, “[The choice of] standard mileage or actual expenses is best determined on a case by case basis [by your accountant]”
What Are the Deductions?
If your expense method is the itemized method, here is a list of some of the deductions you should consider:
“When you are dealing with tax deductible business expenses, you need to keep very detailed records. The biggest business expense is usually your car, so make sure you have detailed mileage logs for every day you drive. You can usually fill in your mileage logs say for the past week or two, but don’t try to estimate your mileage logs at the end of the year. It needs to be recorded as they happened and not hastily filled in during tax season” – (see here).
- Automobile depreciation
- Car payment, Lease (deduct only portion used for ridesharing)
- Interest on Auto Loan only (deduct only portion used for ridesharing)
- Gas and oil
- Roadside assistance charge
- Car washes and interior cleaning
- Water, gum, or snacks for passengers
- Tolls and parking fees
- The fraction of your mobile phone expenses attributable to your rideshare/uber driver work can be used to reduce your self-employment income.
Documentation You Should Keep to Support Your Itemized Deductions:
If your chosen expense method is itemized deductions, then this section is for you. As Andrew Poulos says, Uber drivers need to keep “accurate records of their expenses because if they ever get audited the IRS will disallow any expenses claimed on the tax return that [can’t] be substantiated with supporting documentation”.
The IRS could disallow any tax deductions you can’t support with (See link for more information):
- Mileage logs
- Any other documentation
About Your 1099k:
“Payments for processing your customers’ [fares] are reported on Form 1099-K. The amount shown in Box 1a of this form is all the money [including Uber’s commission] that the ride-share operator collected from customers for rides that you provided.” – TurboTax.
Note, if you don’t receive your 1099k from Uber, Micah Fraim advises that you “contact Uber directly to ensure one has been issued”. Micah Fraim also warns that “failure to report the income can cause serious headaches down the road [in the form of potential IRS audits]”.
About Your 1099 Misc:
If you didn’t get any driver or passenger referrals, this section is probably not for you. Any income outside the income made from transporting customers is likely going to be reported on this form. More specifically Micah Fraim mentions that “If the driver makes over $600 [in Uber referral commissions] in the year, Uber is required to issue the Uber driver a 1099-MISC form and also file that with the IRS”: So in essence you might not receive a 1099-MISC if your miscellaneous (referral) income is less than $600.
Note – in respect to both your 1099-K and 1099-MISC, whether or not you receive one from Uber you are expected to report the income and pay taxes on it. As Anil Melwani says, “It is ILLEGAL not to declare ALL income. Most WORLDWIDE income is reportable (and sometimes taxable) for U.S. citizens and green card holders.”
Editor’s Note: If you don’t receive your tax forms (1099-K and/or 1099-MISC) from Uber, send them an email.
Preparing for Next Year’s Taxes:
- Tools to use for tracking your expenses:
Per our tax experts, consider using any combination of these tools – Quickbooks, Freshbooks, Mint.com, Zoho books, Expensify, MileIQ.com, Xero and for very simple bookkeeping a spreadsheet can also work.
- What to do to prepare for next year’s taxes:
Per Andrew Poulos, “A person operating as an Uber driver should keep good records for their income and expenses, and they should pay in quarterly estimated tax payments to avoid having a tax liability when they file their tax return. Since having self-employment income adds complexity to an individual’s tax return, it’s recommended that an Uber driver consult with a licensed and qualified tax professional to make sure they are estimating properly for quarterly tax payments, and taking advantage of all deductions they are allowed to claim”.
Thanks for reading. We hope this was a very informative article. For links to transcripts from the individual Q&A sessions we had with the tax experts, answers to questions not covered in the article above, and how to contact the tax experts, see the links below:
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