Since the tax season is fast approaching for the Uber drivers in the United States, we decided to do a Question and Answer session (Q & A session) with Andrew Poulos, a tax expert with over 21 years of experience.
Andrew is very knowledgeable and provides insights for Uber drivers and Entrepreneurs that will help them save money this tax season. Andrew also provides tips that will help you plan your tax strategy this year, so that in the coming year you have a bigger tax refund. Read the full Q & A below to find out his expert opinion and general thoughts as it relates to your Uber taxes.
a) What is your name?
b) Where do you work, and what is your position/title?
Poulos Accounting & Consulting, Inc., Atlanta, GA. My title is principal of the firm.
c) What does your job entail?
I work with individuals and businesses across the country and internationally, providing accounting, tax preparation, tax representation services, and representation for collections, and audits at both the IRS and state labor level.
d) How long have you been in the Accounting/Tax field?
e) What is your general opinion on the Uber business?
I think it’s a great business model, but of course there are concerns about the treatment of the drivers as independent contractors.
f) Where do you stand on the widespread notion that Uber is disrupting long held industry regulations? (Specifically relating to W2 vs. independent contractor classification of workers)
Being that I represent employers for worker classification audits at the IRS and state level, I foresee the W-2 vs. Independent Contractor worker classification turning into a federal case which will ultimately go to U.S. Tax Court, and will set precedent for the industry.
g) What would happen to Uber drivers in the US, if they become classified as W2 employees?
If drivers become classified as W-2 employees, they will be impacted several ways. They will have federal, state, and FICA taxes withheld from their paychecks, they will be entitled to any benefits that other Uber employees are offered, and they won’t have to pay for their own gas. Most significantly, Uber drivers will not file a Schedule C on their personal tax return, and will not be able to deduct other business expenses they may have for operating their independent Uber business.
h)What are the major differences in taxation between someone driving for Uber full time and someone driving part time?
Driving full-time or part-time doesn’t necessarily determine if someone should be classified as an independent contractor or W-2 employee. If drivers are classified as W-2 employees, they will all be employees regardless if someone drives full-time or part-time. The one major difference is, depending on what Uber sets in their company policies and employee manual, part-time drivers may not be entitled to benefits or the same benefits as full-time drivers.
i) Do I have to file quarterly tax reports, as a self-employed person in a part-time Uber driver role?
Operating as a sole proprietor you don’t file quarterly tax returns like you do if you operate as a corporation or LLC and have W-2 employees. However, a self-employed person in a part-time Uber driver role will receive a 1099 just like a full-time driver, and may have a tax liability from the self-employment income earned. Therefore, it is recommended that all Uber drivers [part time or full time] that are independent contractors pay quarterly estimated tax payments to avoid having a tax liability when they file their tax return. Having a tax liability also subjects a person to incurring penalties and interest on the balance due.
Note- Paying quarterly estimated taxes is different than filing quarterly tax reports, which are usually filed by a business that has W-2 employees.
j) What taxes are paid by an employer that a self-employed person would need to pay themselves?
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. By being self-employed they are paying the additional 7.65% that the employer would pay if they were an employee instead of an independent contractor.
k) What are the various types of tax considerations that impact an Uber partner and/or driver?
An Uber driver is considered self-employed thus the person has to file a Schedule C on their tax return. This makes it a bit more complex because they have to claim their Uber income, and any deductions they have on Schedule C, and the net income is taxed for 15.3% FICA, federal, and state taxes. By being self-employed it adds more complexity to a tax return that perhaps a person wouldn’t have if they weren’t an Uber driver or partner.
l)Would you advise an Uber driver/Partner to form an LLC in order to operate his/her Uber business?
It may be advantageous to form an LLC for tax purposes. This depends on several factors, one of which is how much income does the Uber driver/partner expect to earn during the year. A single member LLC defaults to a sole proprietorship for tax purposes, therefore the individual won’t have any tax advantage unless they convert the LLC to an S Corporation for tax purposes. In determining if an Uber driver should form an LLC and convert the entity to an S Corporation, they should consider the added record keeping and cost for quarterly tax filings, and year-end corporate tax return preparation, in addition to other factors that should be considered.
m) What does an Uber driver need to do from the start of the business to ensure that they never have issues when filing their taxes?
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.
n)What professional advice would you give an entrepreneur hoping to operate a fleet of cars as regards taxes?
I highly recommend an entrepreneur consult with a qualified and licensed tax professional or accountant prior to getting started so they can form the correct entity that will be the most tax advantageous to them.
o) Standard Mileage or Track Expenses? What is the better option for an Uber driver/Uber partner?
Standard mileage or actual expenses is best determined on a case by case basis: the percentage of business use of the vehicle used for Uber, the cost of the vehicle, maintenance and gas, would be factors to consider if actual expenses or standard deduction should be claimed. The important factor to know is that whichever method an Uber driver elects to use in the first year of filing their tax return, they must use the same method each year thereafter for as long as that vehicle is in business use.
p) What are the top deductions that an Uber driver needs to track?
Some of the top deductions that an Uber driver should keep track of is business miles driven, fuel cost, maintenance cost, auto insurance, cell phone, navigation fees if they have a GPS for business use, health insurance that may be deductible on Schedule C since Uber drivers are self-employed, tax preparation and consulting fees, and office supplies.
q) What tools do you recommend for an Uber driver to use to track their various expenses?
There are several good tools depending on how sophisticated an Uber driver wants to be. They can use an app called Expensify, Mileiq.com, QuickBooks, or Xero depending on their preference.
r) What is the best way for an Uber driver to estimate taxes for the current year, so they don’t have a cash flow situation come tax time?
The best way to estimate and pay quarterly taxes is to take the projected net income (Uber income less expenses) and factor 15.3% for FICA, federal taxes (at whatever income tax bracket the driver is projected to fall in, after taking into account all sources of income), and also account for state income taxes.
s) What can an Uber driver do, if he/she does not receive a 1099 from Uber?
Uber drivers should keep accurate records of all the income received and claim all the income on their tax return even if they don’t receive a 1099 from Uber. By law everyone is responsible for claiming all their income even if they don’t receive a 1099 from a company they do business with.
t) What is likely to happen if an Uber driver doesn’t report the income made driving for Uber?
Uber will report the income to the IRS, so if an Uber driver doesn’t report the income they earned driving for Uber, the IRS will send the person a proposed notice of adjustment and they will be taxed on the entire gross income reported by Uber without accounting for any expenses. The worst thing that anyone can do is not report on their tax return income they earned because the IRS will match up the 1099 reported and adjust their tax return without deducting any expenses. Depending on the amount of income that is not reported, the Uber driver may get audited. The ramifications for not reporting income earned can be serious so it’s advisable that an Uber driver claim all the income earned and deduct all their business expenses correctly.
u) Since you have helped Uber drivers prepare their taxes, what common problems have you seen?
The most common problem is record keeping for their expenses. This tends to be a problem for many self-employed people.
v)Can our readers reach you, if they are looking for help with their 2015 taxes?
Yes, readers can find out more about me at www.savvytaxguy.com and can contact me at (770) 938-6300.
w) Any last words?
Uber drivers should 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. Good record keeping goes a long way. Additionally, paying estimated quarterly taxes is important so an individual doesn’t owe at year-end and have to pay penalties and interest.
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