Top Rideshare Tax Mistakes By Uber and Lyft Drivers
Through my tax course and many posts about rideshare taxes, I’ve fielded a lot of questions from Uber drivers and Lyft drivers about rideshare taxes from your rideshare income. Luckily, many drivers were educated in 2015 when they had to file their rideshare taxes so there is more accurate information about what to do with your rideshare income, but there are still some common misconceptions about how to handle your rideshare taxes.
For additional tax resources from Rideshare Dashboard, check out my popular Comprehensive online course for Uber and Lyft Driver Taxes!
Let’s mention the top tax mistakes and questions Uber and Lyft Drivers still have today:
- They don’t have to pay taxes: Most drivers have or had full time jobs, so they are used to W2 withholding. Because Uber and Lyft drivers are considered independent contractors, there is no such thing as withholding. Drivers get a 1099 form that lists their total income and drivers are responsible for paying any taxes they owe. Depending how much you make and when you started driving, you may need to pay estimated taxes. [Note: Uber is sending 1099-K if you have completed one trip, and a 1099-MISC if you have any passenger or driver referral bonuses. Lyft is sending out a 1099-K if you have over $20k in ride revenue and 200 trips, and a 1099-MISC if you have at least $600 from non-driving activities (referral bonuses, mentoring)]
- Net Revenue vs Net Income: Normally, independent contracts don’t necessarily need to worry about this, but because of how Uber is structuring their 1099, you now need to know the difference. What Uber will report is both your total trip revenue and the net income you received from Uber. You can see more about how to handle your Uber 1099 in this post. Lyft’s 1099 just gives your net income (Total ride revenue – Lyft fees), so you can file your taxes directly with Lyft’s 1099.
- Preparing Taxes by Hand – A large number of people are still preparing their taxes by hand. I highly recommend using TurboTax at a minimum. Make sure to get the Small Business edition because the lower tiers do not allow you to fill out a Schedule C, which will make it impossible for rideshare drivers to properly report your self-employment income. Click here to use TurboTax to file your taxes.
- Income vs Expenses on a 1099 – Reimbursements made directly to rideshare drivers are counted as income on a 1099, so you need to make sure to deduct them as a business expense from your income. The most common reimbursement are tolls.
- Filing Business Income: When you are filing your own taxes, you need to put the self employed (Uber, Lyft, etc) income in a different place, which is a schedule C. Even in Turbotax and HR Block tax software, it doesn’t make this distinction clear. Keep in mind that they are considered business income, even if you never made a separate business entity. Treat all income from Lyft, Uber, Instacart, and other rideshare or delivery services as business income.
- Business Records: 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
- Not Paying Business Taxes: In some cities, you are required to register your business and pay the corresponding business taxes. In Seattle, every business, including non-profit, have to register with the city of Seattle and pay a small tax.
- Not Saving for Taxes: Since taxes are not being withheld, many rideshare drivers are surprised once they find out how much they owe in taxes at the end of the year. The taxes due should not come as a surprise if you save and estimate for them throughout the year. Make sure to set aside a little bit of money from each paycheck to avoid an end of the year scramble to pay taxes. If you have not saved for taxes, make sure to keep track of your business expenses! Here is a post I did on how to Estimate your Tax in a spreadsheet. I do this myself so I have an idea of how much I should be saving. [The formula is about 3/4 way down in the post.]
- Not Paying Estimated Taxes: If you are a rideshare driver and expected to owe more than $4,000 in taxes at the end of the year, you may need to pay estimated taxes 4 times a year. If you do not pay estimated taxes, you can be exposed to penalties ranging from 6 to 8 percent. You can see these two posts more for information:
- Not Getting Professional Help: Taxes are complicated. Sometimes spending some money to have it professionally prepared will save you a lot of time and headache. A tax professional can often find more deductions for you and fix costly mistakes, such as reminding you to pay your estimated taxes. Also, any reputable tax professional will guarantee the tax return and defend you in case of an audit. A typical price for professional tax preparation is about $300 for a simple tax return.
Is there anything else you want to add? Is there something you forgot that had to pay for later?Have more questions about Uber or Lyft? Head on over to our Rideshare Driver Training Course!