Saturday, 24 October 2020

Lyft and Uber Taxes: Surprising Deductions for Drivers

Lyft and Uber Taxes: Surprising Deductions for Drivers
30 Jul

Working as a driver for Uber or Lyft can be a great way to earn money as part of the gig economy. Whether you want to drive for Uber or Lyft as your main gig or as a side hustle, you may have questions about your tax liabilities and possible tax deductions.

Uber and Lyft drivers are considered independent contractors rather than full-time employees. This means you must file income taxes quarterly, using Internal Revenue Service (IRS) form 1099. This means that tax payments are not withheld by your employer from each paycheck. Instead, you need to set money aside in a savings account each pay period in order to save up for your quarterly tax bill.

One of the big advantages of this scenario is that your employment status grants you valuable tax deductions that allow you to decrease your taxable income. Play your cards right as a rideshare driver, and you can subtract the deductions below from your income before determining you total tax liability.

Uber and Lyft drivers are independent contractors

The terms employee, independent contractor and freelancer tend to get tossed around rather loosely. Especially when discussing the gig economy, and Uber and Lyft. But for your taxes, they have very specific meanings. Lyft and Uber drivers are considered independent contractors (for now; California is trying to change that status). That means as a driver, you have to navigate how to do your taxes — and take advantage of deductions.

Employees and independent contractors may do similar or even the exact same work for a company. But when it comes to taxes, a business withholds income tax, Social Security and Medicare from the salary paid out to employees — but not for independent contractors. Employment and labor laws are applied differently to independent contractors than for employees. Independent contractors do their tasks without the same level of control there is over an employee.

Freelancer may be used interchangeably with independent contractor, or in some instances to mean something distinct. But as a rule, freelancers and independent contractors are self-employed, which means the same basic tax issues and regulations apply for both. This group has to think not only about saving a certain amount of their income for taxes, but also about what expenses can be deducted from that income for tax purposes.

Both Uber and Lyft provide online resources to help their drivers through the sometimes complicated process of figuring out taxes as an independent contractor. Lyft also has a promotional discount for drivers interested in using TurboTax.

“We partnered with TurboTax for the fifth year in a row to offer all Accelerate drivers [those who are part of Lyft’s driver rewards program] free access to TurboTax Self-Employed, and 50% off TurboTax Self-Employed Live,” said Eric Smith, a Lyft spokesperson Eric Smith.

Tax deductions for Uber and Lyft drivers

There are five major tax deductions that Lyft and Uber drivers should know about and take advantage of when doing their income taxes:

Tax deduction


Expenses from operating your vehicle Costs including gas, repairs, insurance, lease payments, etc.
Standard mileage deduction 58 cents per mile driven for business use
Provisions for customers Bottled water, snacks and other expenses used toward riders
Tolls and parking fees Costs incurred for using roads and parking
Phone Any phone charges for business reasons

Expenses from operating your vehicle

Any expense related to the running of your business can be considered deductible. If you’re a Lyft or Uber driver, the most obvious qualifying expenses are those relating to your vehicle. There are two options to go about deducting expenses for your car — but keep in mind, you may choose one or the other, but not both. The first option is to deduct what are known as the “actual costs” of operating your vehicle for business purposes. That can include money for gas, oil, repairs, insurance, maintenance, lease payments, depreciation of the model or other costs associated with upkeep.

Standard mileage deduction

The second option is to deduct expenses relating to the business operation of your vehicle via the standard mileage deduction. The 2019 standard mileage rate permitted by the IRS is 58 cents per mile driven for business use, an increase of 3.5 cents from the 2018 rate. You can use that rate to calculate how much of your spending on the vehicle can be deducted when doing your taxes.

Provisions for customers

Everyone loves to get into an Uber or Lyft with free bottles of water, mints and the like. If you stock beverages and snacks in your car for customers, those expenses may be deducted.

Tolls and parking fees

As long as you’re paying them in the course of operating your driving business, you can deduct tolls and parking fees.

Phone expenses

Your smartphone is crucial to being a Lyft or Uber driver, since it connects you to not only the app you’re working with but also to customers riding in your vehicle. You can calculate the portion of your phone bill that is dedicated to business use and deduct that amount — personal phone use does not qualify as a business expense. It may also make sense to have a separate phone and phone plan dedicated to your business use.

Take all the deductions you can

As an independent contractor, you need to embrace all the benefits of your status, especially when it comes to reducing your taxes. When you’re self-employed, the burden is on you to figure out what you need to have ready for tax time and what you can deduct from your taxable income.

Remember to keep thorough records for everything in case the IRS wants to check them in order for you to reap the full rewards of those deductions. And don’t be afraid to seek out help when needed from a tax professional.

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Paul Schrodt

Paul Schrodt |

Paul Schrodt is a writer at MagnifyMoney. You can email Paul here

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