Uber and other independent driving services has become popular in many metro areas throughout the year. As a driver for one of these companies, you can expect to receive a Form 1099-MISC and/or a 1099-K at tax time. The company will report the amount you were paid (over $600) for the year to the IRS.
You’ll be responsible for reporting this amount as income when you file your tax return. You’ll have to pay income tax and self-employment taxes, including Social Security and Medicare taxes on net profit. Be aware, that as a self-employed taxpayer, you are able to deduct certain business expenses.
You should file a Schedule C, Profit or Loss from Business, to determine whether you made a profit and to deduct your expenses. If you also receive a W-2 from another employer, you should also file a Form 1040 along with your Schedule C. You’ll only have to pay taxes on the amount considered “profit”, which is what’s left once you’ve deducted your business expenses.
As a sole-proprietor, you’ll need to pay self-employment taxes on your net income. Even if you are retirement age, you’ll need to pay income tax on money you earn. Self-employment taxes for sole proprietors include Social Security and Medicare. Independent contractors must pay these taxes from their own money.
Employers are required to pay half of these taxes for anyone considered an employee. However, Uber considers drivers to be independent contractors, so therefore they do not contribute to your tax bill. In 2016, the self-employment tax was a flat 15.3% on the first $118,500 earned. You can file IRS Form SE to pay your taxes along with your return.
Deductible Expenses
If you plan to deduct expenses at tax time, you’ll need to keep a record of all your costs. Expenses can lessen the amount of net profit you have to pay tax on.
As a driver, you’ll likely have many car expenses. There are two methods available for deduction: the actual expense method or the Standard Mileage rate.
You can choose to deduct the actual costs of things you spent money on, such as gas, repairs, depreciation, lease expenses, etc. Or you can take the 2016 standard mileage rate of $0.54 per mile driven for business.
You can also deduct your cell phone expenses. If you use the phone solely for the business, you can deduct the full cost, while those who use their personal phone for business should only deduct the relative percent used for business.
If you give your passengers water, candies, gum or other luxuries, you can deduct these expenses.
Additional insurance coverage, when taken for business purposes, can be deducted, along with any parking and tolls you encounter.
You can deduct fees from credit card processors and transaction costs from PayPal or other services.
Should you dedicate a specific part of your home specifically for keeping track of records and other administrative tasks, you may be able to claim a home office deduction.
For any of the above expenses, or any others that you may incur, you should keep a record, including receipts when possible, to prove and substantiate your costs.
