This Tax Guide is written with very specific information for UBER drivers of all types. It can be used by LYFT and other casual taxi drivers, but may not have enough information for true professional non-web based taxi drivers.
Most clients I see trying these businesses out have not given a thought to taxes, but UBER does a fairly good job of helping out. The year end statement you receive has a wealth of useful information. That said, there are a lot of deductions that aren't included that are a slam dunk, as well as some others that might be more shaky. As with all new business models, a lot of how these things apply specifically to UBER have not been fought out with the IRS, so some things may evolve over time. I'm going to start with a general discussion of things that every UBER driver should understand about taxes, and then get into the specifics of your documentation, and then get really specific on deductions.
First, some things you should know and understand:
1. Your business model is a bit unique, and you're doing some things that are fairly common in the tax world, but on a much higher scale than normal. You're using your own car for business, but the business side may be a very small percentage (or very large) of the use of your car. Your car is now a business asset (in part) and thus there are potential implications when you buy, sell or trade it. Keep things simple by only using one vehicle at a time, and taking the standard mileage rate (discussed later).
2. You should be, at this point, a sole proprietor. This means that you own and run the business by yourself, with no employees. You will file the business taxes as a part of your personal taxes, usually on a Schedule C. I strongly encourage you not to have any partners, even your spouse. Your spouse can help, but should generally not be an employee, and not have any true decision making power, except the power that is normal in a healthy spousal relationship (advice and support, but no "official" role). The reasons for this are myriad, and anyone who's delved into a partnership can attest to the issues that arise. For now, just trust me. Later you may want to form a more complicated business entity, but that will require professional assistance and guidance. If your spouse or partner also drives for UBER, they will have a separate and independent business, with it's own schedule C, and, hopefully, their own car. Co-mingling cars at this point will greatly complicate your taxes and probably seriously confuse your, or your preparer's, tax software.
3. You are going to spend more time doing taxes, and it's going to cost more. Even if you use software (which I highly discourage if you are running a business) you will pay more for the programs. Based on the returns I've done so far, the more you drive, the more likely it is that you will also generate taxable income after expenses. This income will be taxed at a much higher rate. 15.3% minimum for self employment taxes (the self-employed person's Social Security and Medicare). The good news is, you only pay taxes on the profit. We'll talk more about budgeting for taxes later.
4. You might not actually be a business. There's some tension between Hobby and Business income. If you take losses year after year, the IRS may put the kabosh on taking a negative income from your business off of your regular taxable income. This is called Hobby Income. It means you do it more for fun than for profit. UBER recruiting has not helped with this, as they sell it more like a Hobby than a Business. As a Hobby, you still have to claim the income (on Line 21 - Other Income), but you deduct the losses on your Itemized Deductions (subject to 2% of income limit, maximum deductions equal to income and a bunch of other restrictions that ensure that you pay taxes on the income instead of getting write offs.) My advice is to go full bore, gung-ho towards making a profit for 3 years. File the Schedule C's and take the losses on your taxes (improving your refund). If, after three years, you haven't made a profit, and gross revenues aren't approaching 5 digits ($10,000), take real stock of where you're at. If revenues are growing and profitability seems close, keep things going. If revenues are flat, profits are a distant dream, and/or your enthusiasm is waning, bite the bullet and either shut the business down, or tone it back and start filing as a Hobby.
Moving along. Here's the advice you need to make things work...
Income: This is the easy part. UBER will issue you a 1099-K and (maybe) a 1099-MISC. The 1099-K reports the income from all the rides you gave and the 1099-MISC reports all other income. You just need the totals from these, though some software lets you enter the whole form and pulls the relevant data. Box 1a of the 1099-K and Box 7 of the 1099-MISC is your Gross Receipts for your Schedule C. I've seen UBER drivers that took tips, and others that did not. If you get tips, add them to these amounts. Any other income you make as a driver should also be added, but I think UBER frowns on this.
Record Keeping: This is usually the biggest deal for a small business, but for UBER it should be very simple. Keep a mileage log!!!!! We will discuss mileage below but, know this, the one piece of information from UBER you should ignore is the mileage number - this is where you will save the most in taxes. (Mile IQ is AWESOME for this)! Other than that, have a notebook and an envelope for receipts. When you make a purchase for the business, write down date, description and cost, if you get income not tracked by UBER, add it here as well. Throw the receipt in the envelope. You can add categories, but don't really need to, if you're unsure something's deductible, write it down and let your tax guy tell you if it's deductible. That's it. Really? No sorting, categorizing or organizing? No. Simply put, your odds of ever needing them for an audit are slim to none. Save the box, notebook, mileage log and tax returns for 7 years, and then throw it all away. If you ever get audited, there's plenty of time to sort through the box and organize it to match the notebooks - but why do it if it's not necessary. If I'm doing your taxes I'm going to use the notebooks, and remind you that you should have a receipt for everything. You don't have to prove things to me. It’s important to understand not to over think things. You get money, it’s entered as income, you pay money, it’s entered as a deduction.
Keep in mind that UBER will report every penny you make, and then give you a report of deductions they took off. This is the easy part. For a lot of people, especially casual drivers, these will be all the deductions they have - except for the mileage log that you MUST have. You can use UBER's mileage, but you'll be leaving your best deduction on the table (or in the car!)
Expenses: You can deduct any ordinary and necessary expenses for your business. I generally describe the requirements like this: If it will make you more money, is required by someone in authority, or makes your business more efficient or your life as a business person easier, it's probably deductible. The list below is actually a fairly exhaustive list of normal business deductions, tailored to UBER. Some won't apply at all, but I'm leaving them there to stimulate your own thoughts.
First some things most UBER driver's could or should be deducting (details in the numbered lists): Mileage, any tolls, parking or access fees not included in the UBER statement, driving gloves, insurance riders, office supplies for the business, steering wheel covers, car equipment specifically for driving passengers that is not normal car equipment or maintenance, mileage tracking apps or equipment, business cards, commercial driver's license, car seat additions that help for long driving, and a percentage of cell phone bills if you use your cell phone for the UBER app. Also any safety clothing or equipment that would not be considered normal for a car that was not used for driving paying passengers. Examples might be first aid kit, flares, fire extinguisher, or a reflective vest. Some might argue that these are normal for a regular driver, but how many people do you know that have these in their car? I would deduct them.
Second, things you should not be deducting: Car maintenance including car washing, oil changes, gas, repairs or any other vehicle expenses unless they are specific alterations or additions to allow you to drive commercially (the mileage deduction covers all these things). Meals and entertainment would be unlikely. Uniforms or clothing would not be deductible, though possibly dry cleaning of a specific set of "driving clothes" - this would be shaky.
Here's the exhaustive list:
1. Pretty much anything the company charges you for. If they deduct it off your commission check, deduct it off your taxes (you report the gross commission, not the commission after deductions). These are all the deduction numbers listed on your annual UBER tax summary (except the income, of course). They generally fit into nice categories on your Schedule C, mostly as commissions.