Thank you for contacting TurboTax Live! in our ask the experts event - and we saw your question about starting your own business.
That is exciting news, and we are sure that you are a real go-getter, seeing that you have driven for a ride-share company to save up to embark on this new journey!!
We see that in driving for the ride-share company, you want to use the income that you have saved up from the ride-share to start the other new business on your own. We took that to mean that you wanted to self-fund the new business venture - and use funds that you are (or will be) investing, rather than seek funding from other 3rd party sources.
While what you are think to do is very admirable - in thinking through and to invest all the money made from the ride-share, the issue is - that each and every year, you have to report the income from your ride-share activities during the year, and then deduct any business-related expenses that we incurred in order for you to have generated that ride-share income - on a Schedule C, in our TurboTax Live! Self-Employed product offering for the tax year.
As a "driver-partner" of the ride-share company - and as far as the IRS is concerned - you’re an independent contractor for the ride-share company, and not an employee of the ride-share company. This comes with the responsibilities of reporting the ride-share income (and related business expenses) on your tax return filings, each and every tax year that you are performing these services.
The difference between being an employee, or in your case, an independent contractor for a ride-share company is huge, especially at tax time. This is because you will receive a 1099 from the ride-share company, and not a W-2 - and the ride-share company has no obligation to withhold federal taxes from the ride-share income - when you are an independent contractor for the company.
Follow these tips to report your income accurately and minimize your taxes.
As a ride-share driver-partner of a ride-share company - you should have received two (2) 1099s:
- Form 1099-K reports the total amount your passengers paid for the rides you provided. This includes all the money you collected from passengers, including the Uber commission and other fees. As a result, the amount shown on Box 1a of the form is greater than the amount you actually received. However, you can usually deduct the additional fees as business expenses, so you pay taxes only on what you earned.
- Form 1099-NEC re-introduced for 2020 (was 1099-MISC in prior years 2019 and before) provides an accounting for any other income you’re paid, including referrals and non-driving-related bonuses.
The IRS rules do not require the ride-share company to issue a 1099-K, if you processed fewer than 200 transactions or earned $20,000 or less in payments.
Likewise, the ride-share company is not required to provide a 1099-NEC if your non-driving income was less than $600.
Even if you don’t receive a 1099 (or at least think you have not received a 1099), you're still required to report your ride-sharing income to the IRS. This is because the IRS rules require that any and all income from work-related business activities - which ride-share driving is such a business activity - be reported as income earned during the particular tax year.
You will use the interview questions on TurboTax Live! to provide answers and detail of your ride-sharing income and business-related expenses, to prepare a Schedule C - Business Income & Expenses, which will be a part of your tax return filings for the tax year.
Since the ride-share company reports your ride-share income information directly to the IRS, you do NOT have to include the actual 1099 forms with your tax return.
You will also use the Schedule C to list your business-related expenses, that you incurred during the tax year, in order to generate the ride-share income.
- When you subtract your business expenses from your income, you will enter the difference—known as the business income or loss—on line 3 of Schedule 1 for Form 1040.
- This income amount is also used on Schedule SE, in calculating your self-employment taxes (for Medicare and Social Security).
To get you off to a good start with your business tax deductions, the ride-share company will often provide you with a tax summary that breaks down the totals of both your 1099-K and 1099-NEC. If you have not yet received your tax summary in the mail for the tax year, you might want to consider checking the online portal account that you originally created to become a ride-share driver, and the tax summary should appear in your messages, alerts, and communications from the ride-share company.
The tax summary shows the total amount your passengers paid for booking fees (to the ride-share company), as well as other fees, such as tolls, other booking-related fees, and split fare fees.
You can list these fees as business expense deductions on Schedule C so you do not end up paying taxes on these fees - since these fees belong to the ride-share company, and were not part of your earned income from the ride-share driving activity.
Deductions for mileage and the business use of your car:
The tax summary from the ride-share company - will also show the total online miles that you drove for the company during the tax year - and will include all of the miles you drove waiting for a trip, and when being en-route to a rider, and on a trip itself.
You can claim any other business-related mileage, such as the mileage you drove to ride requests, the mileage you drove after dropping off the passengers if you're waiting for another ride, and the mileage you drove before rides were canceled.
However, you must keep careful records of your off-trip mileage.
There are two ways to calculate the business use of your car:
- You can deduct the actual expenses of operating the vehicle, including gasoline, oil, insurance, car registration, repairs, maintenance, and depreciation or lease payments.
- Or you can use the standard IRS mileage deduction. For the 2021 tax year, that rate is 56 cents/mile of business use.
The standard IRS mileage deduction usually produces the higher deduction, and it’s definitely the easiest option. You simply multiply your total business miles by the IRS rate (which is currently 56 cents per mile for the 2021 tax year).
Here is an Example of using the standard federal mileage rate (as is in effect for the 2021 tax year):
- You drove 10,000 miles for ride-share purposes - all were business-related miles for the 2021 tax year.
- Your expense equals $5,600 (10,000 X $ 0.56 = $5,600).
If you use the same vehicle for both your ridesharing business and your personal transportation, you must keep accurate records to separate the two uses. You're allowed to deduct only the expenses that apply to the business use of your car. The IRS can disallow any business expenses you can't support with mileage logs, receipts, or other documentation.
Deductions for mobile phone expenses
Your smartphone (or cell phone - and other mobile device) is essential to your business, so naturally its expenses are deductible.
Your possible deductions for mobile phone expenses can include:
- The cost of the phone itself
- The billing charges of your carrier
- And any accessories that are essential to your business, such as chargers, mounts, and cradles
As with your car, you're only allowed to deduct the portion of your smartphone expenses that are related to your business use.
For that reason, many Uber driver-partners purchase a new phone and dedicate it solely to their business. That way, 100% of all costs associated with that phone are deductible from their taxes.
More tax deductions for driver-partners for the ride-share business activity:
Almost anything you spend on your ridesharing business will qualify as a tax-deductible business expense. This includes the business use of your car and mobile phone, but it can also include:
- Bottled water, snacks and amenities for customers
- Business taxes and licenses
- City and airport fees
- Freeway, highway, and bridge tolls
- Electronic toll transponder
- Floor mats
- Car tool kit
- First aid kit
- Tire inflator and pressure gauge
- Portable battery jump pack
- Flashlights and flares
- Roadside assistance plans
- Office supplies
Remember, with TurboTax Self Employed, the section of interview questions on your business activity will ask you simple questions about the business - and the income and expenses for the tax year.
Once you answer these questions, TurboTax Live! will fill out all the right forms for you to maximize your tax deductions.
Across the board - it does not appear that the ride-share companies offer tax advice.
Please refer to TurboTax for additional information about the reporting of your ride-share income and expenses for the tax year. You can reply to this post, or you are always welcome to schedule a call back or Chat session with our Live! tax experts, who can offer options and suggestions for any questions you have about the reporting of your income and expenses.
Since the ride-share company is not responsible for the products or services offered by third parties like TurboTax Live! - it is probably a great idea for you to follow up with us, so that we can provide you with the best assistance in your tax return filings, and in the reporting of your ride-share business activity.
Remember, with TurboTax Live! - we ask you simple questions and help you fill out all the right tax forms. Whether you have a simple or complex tax situation, we've got you covered. Feel comfortable and confident doing your own taxes.
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