As a new driver for Uber, you will receive IRS information documents reporting your earnings for the year along with expenses you paid on those earnings. Uber driver partners must report all the income they have earned for the year on their personal tax return. In addition, Uber drivers are also responsible for paying self-employment taxes on those earnings.
WHAT ARE SELF-EMPLOYMENT TAXES?
When you drive for Uber, you are regarded as an independent contractor, not an employee. At the end of the year you will receive a 1099 as opposed to a W2 if you were an employee of a company. Uber does not withhold social security taxes, so as an independent contractor, you are responsible for paying the employee portion and employer portion of social security taxes. The amount on which you pay self-employment tax is your 1099 reported income less certain allowable business expenses. The self-employment tax rate is currently 15.3% (7.65% employee portion + 7.65% employer portion). If you were a W2 employee, the 7.65% employee portion would be withheld from your paycheck and your employer would pay the other 7.65% employer portion.
HOW ABOUT INCOME TAXES?
In addition to owing self-employment taxes, you are also responsible for accurately calculating your income minus allowable business expenses, and paying income taxes on the total.
HOW DO I REPORT THE TAXES ON MY TAX RETURN?
Like most other self-employed people, you are a business owner operating as a sole proprietor. The good news is that you don’t have to file a separate business tax return. Your business income or loss is reported on your personal tax return on Schedule C (Form 1040) Profit or Loss From Business. On this form you list all your business income and deductible expenses. You only pay tax on the net income; this is after you have subtracted your business expenses.
Self-employment tax is reported on Schedule SE (Form 1040). Keep in mind you are also entitled to a 50% deduction from your adjusted gross income, on self-employment taxes paid.
WHAT VEHICLE EXPENSES ARE DEDUCTIBLE?
When you use your personal car as an Uber driver, you can deduct vehicle related expenses using either the standard mileage rate method or the actual expense method. For most, the standard mileage rate method, currently at 54 cents per mile in 2016, is easier to track and generally more advantageous. Items such as depreciation, maintenance, car washes, repairs, tires, fuel, oil, insurance and registration fees are included in the mileage rate. However, you can still deduct items such as tolls, parking fees, auto loan interest, and supplies for your customers.
HOW DO I CALCULATE MY BUSINESS MILEAGE?
In order to properly claim a deduction for business mileage, the IRS requires written documentation in the form of a log or mileage-tracking program. Your mileage log should include the starting mileage on your vehicle’s odometer at the beginning of the year, and its ending mileage at the end of the year. Each time you use your vehicle for Uber purposes, you need to record the following information:
- The date
- The starting point
- Your destination
- Vehicle starting mileage
- Vehicle ending mileage
- Tolls or other trip-related costs
Commuting miles are not deductible, but miles while driving around waiting for your next customer are deductible. If your deductions are ever questioned, you will need the above information to substantiate your business mileage deduction. These records must be kept for three years from the date on which you file your income tax return.
Uber drivers may receive several 1099 IRS information documents. All drivers receive a 1099-K, which reports the gross amount of payments processed. The amount reported on 1099-K includes the Uber fees, so you need to deduct those. Some will receive a 1099-MISC, which will list any incentive payments, and referral income. In addition, a detailed tax summary will be provided, which is useful in preparing your tax return. The tax summary includes fees that Uber deducted from your gross earnings. Also reported is your “on-trip mileage”, which is the mileage while actually transporting your customer to their destination. As mentioned above, additional mileage may be deductible.
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Mr. Noel B. Lorenzana is an Illinois Registered Certified Public Accountant with over 20 years of experience, dedicated to providing outstanding tax and accounting services to individuals and small businesses in the Chicagoland area. Contact me to find out how I can help you with your taxes.
Disclaimer: Any accounting, business or tax advice contained in this article, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, I would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.