Are you one of the thousands of people who started driving for Uber or Lyft this year? If so, it might be your first time dealing with filing taxes as a self-employed person.
Uber drivers and Lyft drivers are not considered "employees" by the IRS. Instead, they're classified as independent contractors, meaning the rideshare services don't withhold taxes from their payments. Independent contractors also receive a 1099 at year-end rather than a W-2.
Whether you drive full-time or as a side-hustle, independent contractors are small business owners in the eyes of the IRS. And you're required to pay taxes on your ridesharing income.
Uber and Lyft drivers actually pay two kinds of taxes when they file their returns:
Self-employment taxes are essentially the self-employed version of Social Security and Medicare taxes. If you have more than $400 in income from your ridesharing work, you need to pay self-employment taxes.
For the 2022 tax year, the self-employment tax rate is 15.3% of the first 92.35% of your net earnings from self-employment. The keyword here is net earnings. This means you can deduct business expenses to reduce the amount of tax you'll owe. We'll dig into the types of costs you can deduct later.
As an independent contractor, you still have to pay regular income taxes in addition to self-employment taxes. Unlike self-employment taxes, income taxes don't have a one-size-fits-all rate. The amount you'll pay depends on the amount and types of other income you have, your filing status, the tax deductions and credits you're eligible to claim, and your tax bracket.
A good rule of thumb is to set aside 25-30% of your net income to cover self-employment and income taxes.
To learn more about estimating your tax bill, check out How Much Are Taxes for a Small Business?
Most Uber and Lyft drivers will report the income from their ridesharing work on Schedule C and attach it to their individual tax return, Form 1040.
How Accracy can help
Want to have the easiest tax season and the smallest tax bill? With Accracy's premium subscription package, you get access to a tax professional year round in addition to automated bookkeeping. Our tax professionals are there to ensure you take advantage of every deduction available to you. While spending your money right can decrease your tax bill, the confidence of going into tax season knowing it will be the smallest bill possible is priceless.
You may receive two 1099 forms from Uber or Lyft, but not always.
Even if your income from Uber and Lyft doesn't rise to the level of receiving a 1099 form, you still need to report your income to the IRS. So go into your driver dashboard and download your income details for the year.
These forms will typically report a higher income than what you actually received. This is because it reports the total of what your customers paid before Uber or Lyft takes their fees. These fees are tax deductible as a business expense.
Your gross income from rideshare driving goes on Line 1 in Part I of Schedule C. If you drove for both Uber and Lyft during the year, you don't need to complete two separate forms. Just add the income from both rideshare companies together and include the total on one schedule.
The tax summary available from Uber or Lyft will include some expenses, but you may have other deductions that aren't tracked by the rideshare companies. Here's an overview of some common expenses you can deduct from your business income:
Add up your expenses for the year and enter them on lines 8 "“ 26 of Part II of Schedule C. If any of your costs don't fit into the pre-filled categories, you can list them in Part V.
You'll also need to enter a few questions about your vehicle in Part IV.
On Lines 28 "“ 31 of Schedule C, follow the directions to calculate your net profit or loss from the business. Then enter the result on Line 3 of Schedule 1.
Take the self-employment income you calculated in Step 3 and carry it to Schedule SE to calculate your self-employment tax.
Once you calculate your self-employment tax, enter the result on Line 4 of Schedule 2. You can also take half of your self-employment tax as an above-the-line deduction on Line 14 of Schedule 1.
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If all of this sounds complicated, don't worry! A reputable tax preparer or software program can complete the necessary tax forms. You just need to provide your income from Uber or Lyft, as well as any applicable expenses.
If you'd rather have someone else take care of all the bookkeeping and taxes for you, check out Accracy. We'll pair you with a dedicated bookkeeper who will take care of your bookkeeping for you, and we'll get your taxes filed too. Learn more about AccracyTax.
We are offering free 1 Month Basic Bookkeeping to all new customers so you can experience Accracy's seemless and professional services.
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