Kevin Sibley – a program manager in the San Francisco Bay area – earned $27,000 last year with his side hustle driving for Uber, Lyft, and Amazon Flex, leaving him a tricky 2017 tax filing season to navigate.
Like all rideshare and delivery drivers, Sibley is an independent contractor rather than a traditional employee of those companies. He is therefore responsible to track his deductions, and put aside withholdings like federal and state taxes, Social Security, and Medicare.
“You need to be meticulous with your records,” says Sibley, who drives about 30,000 business miles a year. “The hardest part is tracking miles, distinguishing between what I do personally and in the rideshare business.”
Mobile Apps Easily Track Business and Personal Mileage and Expenses
Sibley used to track his earnings, business expenses, and car mileage by hand, and by snapping cellphone pictures of receipts and his car odometer, resulting in a lot of “guestimation.” Afraid of an IRS audit, he would underestimate his expenses and business mileage, ultimately leaving money on the table.
Today he uses SherpaShare, a mobile app of smart driving tools and business expense and mileage tracking features designed for rideshare drivers. When in the car, drivers can use the app to automatically track their trips and see their deductions in real-time; swipe right for a business trip, swipe left for a personal one. The app does the rest.
“Before SherpaShare it took me a couple of months to do my taxes, I would sit there not knowing what to do, and think I was going to make major mistakes,” adds Sibley. “Now it takes me one night.”
Choosing Between the Mileage or Expense Deduction for Car Owners and Renters
The IRS per-mile rate for 2017 is 53.5 cents per business mile driven. IRS Publication 463 provides additional context. There’s also a table for rideshare drivers who lease or rent a car for business. While mileage is typically the biggest deduction, drivers can choose to claim actual expenses instead; things like gas, maintenance, insurance, registration fees, car payments, depreciation, tolls, and parking can all be written off. For example, a driver with a gas guzzler might find the write off on expenses larger than the write off for mileage. Do the math on both options before filing. But drivers must choose one or the other. There are some deductions that can be taken even when drivers claim business miles, including car washes, passenger snacks, dash cams, inspections/background checks, cell phone expenses, and other services allocated to rideshare use.
If you rent a car, however, you cannot use the mileage deduction. Instead, drivers who rent can deduct the expenses of their business, including the rental costs. This is where apps like SherpaShare also come in handy because they help drivers track these expenses. Within the app, users can take, store, and organize photos of receipts.
“It’s useful not only for tax purposes but to understand how much revenue drivers are making so that at the end of a certain period they can look at a rideshare statement and see how much they’ve earned and then on the expense side how much they accumulated to understand how much they are making per hour and per mile,” says Andy Pillsbury, a Vice President at SherpaShare. “That helps them make informed decisions.”
The IRS Tax Forms Rideshare Drivers Need
Another item drivers will have to assess is the 1099 tax form that the rideshare and delivery companies send drivers during tax season. It’s critical drivers only use their net earnings for calculating their taxes, rather than money that might have been earned, but goes back to the company. Drivers pay tax on gross earnings less expenses. Being self-employed means income is subject to a 15.3% self-employment tax, which covers contributions to Social Security and Medicare. But drives must also account for federal taxes and state taxes, which based on gross profits will bump up the amount owed in taxes. It’s hard to know how much Lyft and Uber drivers should set aside here, but it’s not uncommon for these taxes to reach 30% to 50% of income. Drivers will likely be reporting earnings on a Schedule C IRS form and Schedule SE if their net income is greater than $400.
The information contained in this article is meant only for guidance purposes and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general. For professional consultation, please visit a certified tax professional.