People who drive for Uber, Lyft, or other rideshare companies can run into tax problems if they aren’t familiar with certain tax laws. Rideshare drivers are generally treated as independent contractors, which means they are responsible for the following things:
- Tracking and claiming their own business expense deductions
- Paying their own self-employment taxes
- Making estimated tax payments
If you are a rideshare driver, make sure you are operating like a business because the IRS views you as a self-employed taxpayer.
Track Your Deductions
You won’t be able to account for a year’s worth of business expenses at tax time unless you track them regularly. Common expense items you may be able to deduct include:
- Part of your phone bill
- Water, snacks, gum, or other items you provide to your passengers for free
- Inspection costs that are required to become a rideshare driver
You also need to understand how Uber reports income on Schedule K-1. If they are reporting your income before accounting for fees claimed by Uber, you are entitled to a deduction for these amounts that Uber took out of your pay. Work with a tax preparer if you aren’t sure what deduction to take so you don’t cause errors that could increase your risk of an IRS audit.
Avoid Underpayment Penalties
Independent contractors need to pay self-employment taxes and their own income taxes. If you have a full-time job and just drive Uber occasionally, you may be able to simply increase your withholding at your day job to account for your Uber income.
If driving for Uber is your primary gig, you’ll probably need to make estimated tax payments. You make these payments four times a year under the IRS pay-as-you-go system.
If you don’t pay enough throughout the year, you’ll be hit with underpayment penalties. You’ll also owe a lot in taxes when you file your return, which could cause financial problems if you are expecting it.
Resolve Your Tax Problems
If you fall behind on your taxes because you don’t know how much to pay in estimated taxes, you may want to consider requesting an IRS installment agreement. Make sure your payment plan allows you to afford your monthly payments while also keeping up with your current estimated tax obligations.
Contact a tax attorney if you need assistance with payment plan negotiations and other tax resolution matters.
Get help with tax problems related to driving for Uber or Lyft by calling The Gartzman Law Firm at (770) 939-7710. We can listen to your concerns and help you find the best tax resolution strategy for your case.