Are you hitting the road as an Uber or Lyft driver, racking up miles and cash? While driving brings in income, managing your taxes can feel like navigating through rush-hour traffic—confusing and stressful! 

You’re not just behind the wheel; you’re in the driver’s seat of your financial future! Every mile logged is a step toward boosting your income, but if you want to keep more of those hard-earned dollars in your pocket, you must understand your tax obligations. 

Navigating the world of taxes can seem as challenging as finding a passenger during rush hour, but fear not! But fear not; we’ve got you covered with essential tax tips that will help you keep more of what you earn. 

Whether you’re a seasoned pro or new to tax filing for Rideshare LLC, doola will empower you to take charge of your finances like never before. 

From claiming tax deductions to forming an LLC, we will handle everything for you to maximize your earnings come tax season.

In this blog, we’ll unlock vital tips that will help you maximize your earnings and minimize what goes to Uncle Sam. Buckle up and get ready for a tax journey that pays off big time!

What It Takes to Be an Uber and Lyft Driver

Uber is one of the leading companies in the gig economy, providing on-demand transportation services through its app. To become an Uber driver, you need a valid driver’s license, access to a registered vehicle in good condition, and pass background checks.

Lyft has similar requirements for becoming a driver as Uber does, but it also allows drivers to rent cars from approved partners. But before you hit the road as an Uber or Lyft driver, it’s essential to understand the tax obligations that come with this type of work. 

However, navigating the world of taxes can be overwhelming and confusing as a rideshare driver. You may be unsure of what expenses you can deduct, how to track your earnings, and when and how to file your taxes. 

The first step in understanding how taxes work for rideshare drivers is knowing that you are considered an independent contractor by the IRS. This means that Uber and Lyft don’t withhold taxes from their payments and provide you with a 1099 at year-end rather than a W-2 form.

So whether this is your full-time gig or a side hustle, you are a small business owner in the eyes of the IRS. This means that you are responsible for paying self-employment taxes in addition to income taxes.

Combined, your annual taxes can easily reach 30% of your yearly income, so you must set aside money to pay them. However, you may also pay estimated quarterly taxes if you’re accepting ridesharing fares more than occasionally. 

If you anticipate owing $1,000 or more in total tax liability after subtracting any withholding or refundable credits from your total annual tax bill (including self-employment tax), then you will need to make estimated quarterly payments.

How to Calculate Taxes on Your Uber and Lyft Earnings

The most critical aspect of understanding how taxes work for rideshare drivers is knowing how much you owe. As an independent contractor, you must pay Self-employment taxes if you have more than $400 in income from your ridesharing work.

This tax covers Social Security and Medicare contributions, which are typically split between employees and employers. The self-employment tax rate is 15.3% of the first 92.35% of your net earnings. 

The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance). However, you only have to pay tax on your net earnings after deducting your business expenses. 

In addition to self-employment tax, you also have to pay regular income taxes as per your tax bracket. Your tax bill depends on your earnings and other income, the type of entity, deductions and credits you’re eligible to claim, and your tax bracket.

To calculate your taxable income, you can subtract your business expenses from your gross earnings. Your gross earnings include all tips or incentives from the passengers and rideshare company. 

Since tips are taxable, they will show up on your gross earnings documentation that Uber or Lyft generates. This is where tracking every paycheck and expense becomes vital. The lower your taxable income, the less tax you’ll owe.

You should set aside 25-30% of your net income for self-employment and income taxes so as not to get blindsided. However, calculating your tax bill is not easy since there are so many tax credits, deductions, and differences based on business entity type. 

Therefore, it’s best to consult a tax professional to calculate your tax liability so you can get straight to the tax preparation with doola’s tax filing for rideshare LLCs.

How to File Taxes as an Uber or Lyft Driver

When the tax filing season comes, you will have to report your self-employment income and expenses on Schedule C and attach it to your tax return, Form 1040. 

If you’re new to filing taxes as an independent contractor, this may seem like a mountain of paperwork. But don’t worry, we’ve got your back.

First, if you generate over $600 in customer payments, you will receive a 1099-K from Uber or Lyft. You may also receive a 1099-NEC if you make more than $600 in non-driving income, such as bonuses, referral fees, and rewards.

You may notice a higher income than what you actually received in these forms. These forms only show the total of what your customers paid before Uber or Lyft took their fees, not the amount you earned. But don’t fret— you can deduct these fees as business expenses.

If you use both Uber and Lyft during the year, you don’t need two separate forms. You can add the income from both rideshare companies together and include the total on a single Schedule C.

Tax Deductions for Uber and Lyft Drivers

Tax deductions for business expenses are the best way to prepare an accurate tax return and lower your taxable income. You can deduct common driving expenses, including fees and tolls that Uber and Lyft take out of your pay.

Lyft makes this easy for you by providing you with totals for some business expenses on your Driver Dashboard. This includes the Lyft fee, tolls, and the miles you drove while online. However, these are just the beginning of your business expenses.

1. Vehicle Expense

In addition to the miles you have driven, you can also deduct other business-related miles, such as moving to pick up supplies or miles driven after you dropped off a passenger. There are two ways to deduct vehicle expenses. 

For 2024 tax returns, you can use the standard mileage rate and take a deduction of $0.67 per business mile. You can also deduct the actual expenses, such as gas, repairs and maintenance, auto insurance, registration fees, and car loan interest or lease payments.

2. Miscellaneous Fees

In addition to Uber and Lyft service fees, your 1099 will include other expenses that they have charged to the passenger as fees. Make sure you deduct these fees paid to the platform to ensure you’re not paying taxes on money you never received.

3. Parking and Expenses

You can also deduct any parking fees and other expenses, such as the cost of small repairs related to your work that the passenger didn’t pay.

4. Cell Phone Bills

Since you need a separate phone to manage your rideshare driving activities, you can deduct 100% of the cost of the phone and your monthly data plan. However, if you use your personal phone, you can only claim a deduction for expenses related to business use.

5. Supplies

Keeping your car stocked with water and snacks not only gets you five-star ratings from passengers but also reduces your tax bill. 

You can deduct the cost of these supplies as a business expense, including a phone charger, a dashboard mounting system for your phone, a first aid kit, and floor mats.

6. Insurance

As an independent contractor, you are responsible for getting insurance coverage for yourself and your vehicle on the job. The good news is that these insurance premiums are fully tax-deductible as long as they are paid out-of-pocket by the individual driver.

7. Roadside assistance

Since car breakdowns are a hazard of this job, you must get an AAA membership or a similar roadside assistance plan for your vehicle. On the bright side, you can deduct a percentage of your annual membership fee based on the number of miles you drive for business.

8. Car washes

The condition of your car can significantly affect your earnings. If it is dirty and damaged, passengers may refuse to sit in it and cancel the ride. And that’s not all! Uber and Lyft often charge a penalty for cancellations, which will come out of your pocket.

Luckily, you can keep your car clean and tidy by taking it for regular car washes and deducting a portion of these expenses on your return. Plus, your passengers will give you good ratings.

Now that we have covered the expenses, let’s move on to claiming them in your tax filing. You can add up your costs for the year and fill them out on lines 8 – 26 of Part II of Schedule C. 

If any of your costs don’t meet the requirements of any pre-filled categories, you can list them in Part V and enter a few questions about your vehicle in Part IV.

If all of this seems too complicated, you can consult our tax professional, who can help you complete the necessary tax forms. You just need to provide your income from Uber or Lyft, as well as any applicable expenses.

Setting Up An LLC as An Uber or Lyft Driver

A limited liability company or LLC is a popular choice for self-employed individuals like ridesharing drivers due to its flexibility and simplicity. Most drivers form a rideshare LLC for tax deductions since it provides more tax benefits than operating as an independent contractor. 

It allows you to deduct certain expenses related to your ridesharing business, resulting in lower taxes owed. Moreover, being registered as an LLC provides liability protection. 

For example, if you get sued or face legal action, only the assets within the LLC are at risk, not your personal finances or property. 

The process typically involves choosing a name for your company (which must be available in your state), filing articles of organization with the state’s Secretary of State office, and obtaining any necessary licenses or permits.

The process is relatively simple and affordable and unlocks many LLC benefits for Uber drivers.

Book a consultation with our formation expert to determine the best option for your individual circumstances.

Taxes Hitting The Breaks on Your Business? Drive Into The Sunset with doola

As a ride-sharing driver, you have the freedom to set your hours and make money on your terms. However, during tax season, this flexibility can turn into a headache if you’re not prepared. 

This is where doola can help drive you towards a stress-free tax season. We know that while you may be earning income from Uber or Lyft, you may also have other sources of income, such as tips or bonuses. 

Our team of tax professionals and bookkeepers will work with you to ensure all sources of income are accounted for and properly reported on your tax return. They will also go through all your expenses and claim deductions that can significantly reduce your taxable income. 

However, we know keeping track of these expenses amidst juggling multiple passengers and navigating busy streets can be challenging. This is where our bookkeeping solution comes in handy.

This will help you track and organize all your expenses so that nothing falls through the cracks come tax time. Let us handle the numbers while you focus on hitting the road and maximizing your earnings. 

Book a consultation with our tax experts to learn more about how we can help you sail smoothly through tax season!