As an Uber or Lyft driver, you are an independent contractor and treated differently under the IRS code. With this comes new rules when it comes to your taxes. Understanding the tax code can help you minimize your tax liability. Watch the video below for more details or call our office for help.
Deductible Expenses and Tax Liability for Your Car
Are you an Uber or Lyft Driver? There are some special tax issues that apply to you. Uber and Lyft currently treat drivers as self-employed independent contractors. That means you report your income and expenses on a Schedule C, and determine your net income subject to income tax. You will also be subject to self-employment tax, which is a self-employed individuals’ equivalent to FICA and Medicare tax of an employee.
What percent of FICA am I responsible for during 2016?
What does all the above mean? This means you pay the total percentage of FICA a combination of Social Security and Medicare taxes. This is instead of just the half you may be accustomed to when you see a pay stub from an employer. For drivers whose net income was up to $118,500, the FICA tax of 15.3% (12.4% for social security plus 2.9% for Medicare) must be paid by you. Whereas if you worked for an employer it would have only been 6.2% and 1.45% for Medicare).
Claiming Mileage versus Itemized Operating Expense for an Uber or Lyft Driver
The flip side to this is you get to deduct your expenses for operating costs when using your car. Your deductible and expenses include all the operating expenses for your car. The IRS determines these expenses based on actual costs or using the standard mileage rate, whichever you chose to go by. Making the choice between actual or standard rate methods in the first year will affect your ability to switch methods in future years. By the way, the standard rates method has changed in 2017. But we warn you, whatever you chose, be consistent year over year or until you retire that vehicle and purchase a new one.
Can I claim depreciation on my vehicle if I am an Uber or Lyft driver?
The short answer is no. The normal depreciation limits do not apply when you use your car in the business of transporting people for compensation, otherwise known as livery services. Allowing you to pick almost any amount of write-off that best suits your particular circumstances when using the actual expense method in the year you purchase the car.
I owed taxes last year, what should I do to remain current on my tax payments?
As a self-employed individual, we suggest that you make estimated tax payments. It is the same as withholding income taxes for employees.
Do you have questions about being self-employed?
Just a side note, as an independent Lyft or Uber driver, you have several retirement plan options. These options are not because you drive specifically for Uber or Lyft, but because you are self-employed. Call our office and we can help you define what you can include and what may make the most sense for your vehicle when you drive for any ride-sharing service. For more information relating to your business, call Alex Franch, BS EA at 781.849.7200 for details.
Alex Franch is an enrolled agent with the IRS. Or, should you need to meet with someone from our tax team, you are welcome to book your appointment online. Oh, and right now we have an incentive for you. Drop off or mail your taxes to one of our three locations in locations in Quincy, Weymouth and Dedham an you will save $35 on your tax preparation click here for details and other incentives. Please note some exclusions may apply.