Ridesharing and taxes: king of the road, or roadkill?

August 18, 2017 by Carolyn Richardson, EA, MBA
Driver pointing to a smart-phone attached to the windshield

With the increasing popularity of ridesharing services such as Lyft and Uber, you may be asking yourself, “Can I make extra money doing this?” The answer, of course, is that working for a ridesharing service, or doing similar kinds of “gig economy” work, such as making deliveries for shopping sites, may be a good way to make some extra cash. But what are you getting yourself into?
 
Most of the companies involved in these types of services treat the people who work for them as independent contractors, not employees. In simple terms, independent contractors are actually working for themselves, and are not considered employees of a business. This not only means that those who drive for them receive no benefits (although some companies provide more protection for their contractors than others), but they may be creating tax problems for themselves if they are not aware of the tax issues that can arise from these gig jobs.
 
Independent contractors are considered to be self-employed, and there are both benefits and drawbacks to that. Contractor income is reported from the company via either a Form 1099-MISC or a Form 1099-K to the worker. Unlike a Form W-2, which employees receive, these forms usually do not have any federal or state withholding included with them, so no tax payments are being sent to the government against your eventual tax liability. This can result in an unexpected – and potentially large – tax surprise when you file your tax return. In addition to income taxes, self-employment income is subject to “self-employment tax,” which is the equivalent of both the employer and employee share of Social Security and Medicare taxes, and taxed at a 15.3% rate, in addition to your normal income tax rate.
 
On the bright side, taxes are assessed only on “net income,” which means your income from driving, less any allowable business expenses. Business expenses for gig driving may include your mileage from driving clients around, but you must keep a mileage log of both your gig mileage and your personal mileage to claim this deduction. You may also be able to deduct other business expenses, such as insurance, gas, car repairs, car washes, but only the business mileage portion of your vehicle. You may also be able to deduct supplies, such as bottled water or snacks you buy for your pickups. It is important to remember to keep the receipts and proof of payment, such as credit or debit card receipts, for these expenses. Without receipts, the expense may be disallowed completely if you are audited.
 
And as always, if you receive an audit notice, having a TaxAudit membership will mean you don’t need to face the IRS alone. We will be by your side, defending you all the way.

SEARCH

 

Carolyn Richardson, EA, MBA
Learning Content Managing Editor

 

Carolyn has been in the tax field since 1984, when she went to work at the IRS as a Revenue Agent. Carolyn taught many classes at the IRS on both tax law changes and new hire training. In 1990, she left the IRS for a position at CCH, where she was a developer on both the service bureau software and on the Prosystevm fx tax preparation software for nearly 17 years. After leaving CCH she worked at several Los Angeles-based CPA firms before starting at TaxAudit as an Audit Representative in 2009. Carolyn became the manager of the Education and Research Department in 2011, developing course materials for the company and overseeing the research requests. Currently, she is the Learning Content Managing Editor. 


 

Recent Articles

Woman looking in a parking space with her car missing
Since the government considers your vehicle to be just another piece of property, so is there a tax deduction for the theft of your car? Let's find out.
Private School Piggy Bank on a Calculator
There are some parts of the tax code that, in fact, can allow tuition fees to be fully deductible. However, in most cases you cannot deduct private tuition.
NOL form
If you suffered economic losses, you may have a net operating loss (NOL) on your taxes. Getting audited by the IRS for an NOL can be complicated.
Penalty
You received an IRS notice CP162 in the mail. You are probably wondering why you received this notice and what it means – we are here to answer your questions.
This blog does not provide legal, financial, accounting, or tax advice. The content on this blog is “as is” and carries no warranties. TaxAudit does not warrant or guarantee the accuracy, reliability, and completeness of the content of this blog. Content may become out of date as tax laws change. TaxAudit may, but has no obligation to monitor or respond to comments.