With the holidays approaching, many people are looking for ways to earn a little extra spending money. Becoming a driver for a rideshare service such as Uber, Lyft and Sidecar is a good option for some. It is easy to get into the industry, you can work when it’s convenient for you, and you can make a decent gross income depending on how much you want to work. However, there several tax consequences that apply to drivers. For one, drivers are not employees of the rideshare services but are considered independent contractors by their respective companies and the Internal Revenue Service (IRS). This means that they will have to pay income taxes on the earnings reported to the IRS on form 1099K. The good news is there are also several tax deductions that can be used to reduce drivers’ gross income. Following are just some of the deductions available to rideshare drivers:
• Business Miles Deduction: The IRS allows you to deduct the business millage driven while working. This includes the miles driven while taking a passenger to their destination and between picking up passengers. The rate for 2015 is $.575 per mile.
• Franchise Fee Deduction: All rideshare companies take a cut of the gross fares produced by their independent drivers. This fee ranges from 15% to 25% of the gross fare, and that amount is deductible as a business expense to the rideshare driver.
• Safe Ride and Device Subscription Fee: This applies to Uber drivers. This is the additional dollar charge to riders each trip, and the $10 weekly fee charged for using the uber device. These fees are deductible as a business expense.
• Property Taxes: The IRS allows a deduction for the annual ad valorem tax imposed to the vehicle. This must be proportionately allocated based on the time the vehicle is in use for the rideshare business versus for personal use by the owner.
• Interest Expense: The IRS allows a deduction for the interest paid for financing a business property. This applies to cars that are being financed as well as those being leased. Similar to property taxes, above, this must be proportionately allocated to the business time use of the vehicle.
• Phone Expense: The IRS allows a deduction for the business usage of your cell phone. This is something that applies to almost all drivers, because they have to use their cell phones to conduct their rideshare business.
• Parking Expense: Any parking fees incurred while working are deductible as business expenses.
• Insurance Expense: The IRS allows a deduction for the commercial insurance expense. This is especially useful for those individual driving Uber Black and Uber Taxi that must purchase a commercial car insurance policy.
• Other Miscellaneous Business Expenses: there are other miscellaneous expenses such as water bottles, XM radio subscriptions, candy, and other supplies purchased for your clients. You must consult with a tax professional to determine the proper deductibility of these items.
There may be other deductions that can be used by rideshare drivers to help improve their income tax situation. As with any independent contractor, it’s important to keep proper documentation of these expenses such as receipts, ledgers, and mileage logs for the business miles. If you have any questions, it is always best to consult with a tax professional.
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