If your mileage is your only deduction, you may be right. However, there are other deductions you may be entitled to that you may not be considering. I have included some information for your review prior to making your decision.
Being an independent contractor means that you're self-employed . As far as the ride-share company is concerned, you're
the owner of a separate business that it uses to provide driving services. So
when you receive a payment, understand that it's not a traditional
"paycheck," and likely no taxes have been taken out.
It's up to you to take care of federal and state
income taxes, as well as Social Security and Medicare. Combined, these taxes
can easily reach 30% to 50% of your income, so make sure to set aside money to
pay them.
If you're accepting ride-sharing fares more than
occasionally, you may be required to file quarterly
estimated income taxes. At tax-filing season
each spring, you'll be reporting your self-employment income and expenses
on Schedule
C, as well as filling out Schedule
SE for self-employment tax if your net
income from the work is greater than $400.
Tax deductions for your car
Since you're an independent business owner, just about
any money you spend on your gig as a ride-share driver will be a tax-deductible
business expense. The first thing that probably comes to mind is your car.
There are two ways to take a deduction for the business
use of your car:
- Deduct the
actual expenses of operating the vehicle for business, including gas, oil,
repairs, insurance, maintenance and depreciation or lease
payments.
- Take the standard IRS mileage
deduction. As of 2016, the rate is 54 cents per mile driven for
business use.
If you use your car for both ride-sharing and personal
transportation, you can deduct only the portion of your expenses that apply to
the business use. And whichever type of deduction you claim, it's critical that
you keep thorough records. The IRS could disallow any tax deductions you can't
support with:
- Receipts
- Mileage logs
- Any other documentation
Other tax deductions for ride-share drivers
Commissions you pay to the ride-share company are a business
expense, as is any cost you may have to pay for technology installed in your
car. Other tax deductions include:
- Water, gum or snacks for
passengers
- Tolls and parking fees
In addition, ride-sharing companies typically require use of a
smartphone.
- The portion of your mobile
phone expenses attributable to your ride-share work can be used to reduce
your self-employment income.
- For simplicity's sake, it may
make sense to have a dedicated phone for work.
Making sense of your 1099 forms
As a contractor, you won't get a W-2 form from your
ride-share operator, but you likely will receive one or more 1099
forms. Ride-share companies generally
distribute these forms according to the same criteria:
- Payments for
processing you customers' payments are reported on Form 1099-K. The amount
shown in Box 1a of this form is all the money that the ride-share operator
collected from customers for rides that you provided.
- This will be more than you
actually received in payment, since it includes the ride-share company's
commissions and other expenses. Your ride-share operator will provide you
a tax summary you can use to translate the 1099-K information into some
of the income and expenses to report on Schedule C.
- Payments for
other activities, such as referrals or non-driving-related bonuses, are
reported on Form 1099-MISC. This money is
income to report on Schedule C.
