For self-employed drivers, tax time can be particularly demanding. With more income, expenditure, and tax forms to keep track of the taxpayer than the average taxpayer, drivers have a lot more details to wrangle before making their taxes.
However, tax time must not be stressful. If you are working as a driver, it is important that you manage your own taxes. Here is how to avoid driving away from the Internal Revenue Service (IRS):
The IRS does not consider Uber drivers as employees. The drivers who are a part of Uber offer rideshare services are known as independent contractors, meaning to say, taxes on their fees are not withheld.
In the eyes of the IRS, drivers who work for Uber are independent contractors regardless of whether you are driving full-time or part-time. On your profits from ridesharing, you have to pay taxes.
The IRS wants you to carefully differentiate between expenses for business driving and personal driving expenses. It’s always necessary, in general, to keep business and personal expenses apart. After that, you will need the necessary documents and forms to get a return.
However, for the forms linked to self-employment, tax prep firms charge extra. While in the next year you can subtract these expenses as a company expense, they can still take a toll on your pocket. It is a good idea to handle and manage your own taxes as long as you have the time for them.
It is never a good idea to just let it be. Knowing more about Uber 1099 taxes is a good way to start managing your taxes efficiently. One of the most important things that you need to do is filing a Schedule C while you are a rideshare driver in order to disclose your revenue and expenses.
Most drivers will report on Schedule C the earnings from their ridesharing job. To monitor business expenditures and revenue, use Schedule C or C- EZ. Take personal deductions on your Form 1040. When filing your individual tax return, it should be on Form 1040, rather than on Schedule C.
The income earned from Uber will be registered to the IRS and to you. Failure to declare the income will be subjected to fines and penalties, and it would be called income tax evasion.
How Much Do They Have To Pay?
Drivers pay two kinds of taxes, which are self-employment taxes and income taxes. Self-employment taxation is an independent version of the Social Security and Medicare charge. You must pay self-employment tax if you have over $400 in profits from ridesharing jobs.
In income taxation, the amount you will pay depends on the amount and form of other revenue you have and your filing status, qualified tax deductions, credits and tax bracket.
How Do You Effectively Handle Your IRS?
One of the many reasons people delay filing their taxes is that it feels like it’s going to take hours to complete. Actually, you can oversee the full process in less than an hour as far as you’re confident in it.
Instead of running away from it, confront it head-on and list down those expenses. Make sure you have all of the necessary documentation and details in front of you before you start the filing process. There is no worse feeling than beginning to file your taxes and finding that you don’t have the required main document.
Rideshare drivers have access to deductions for mileage, vehicle washing, passenger goods, mobile phone bills and a whole lot more. You can subtract a part of these costs and fees related to your business. You will need receipts to back up your claims if you use the real system to measure your company expenses.
The part of each expenditure that was meant for your company must be measured and only that number should be deducted. If you take full advantage of all of them, you might end up substantially lowering your effective tax rate.
For your mileage deduction, this is the starting point. Only the miles driven in your car with passengers are included in the Uber mileage figure. The IRS takes into account the average cost of auto insurance, car payments, repairs, petrol and depreciation (among a few other expenses) to create the regular mileage rate.
They generate an average sum that drivers should be able to deduct for each business mile they travel. Subtract other mileage related to business, including the miles you drive to pick up a passenger after getting a request for a ride and the miles you drive to get to a more central location to wait for your next request for a ride.
Take note that the miles to go home are not deductible. Subtract any parking fees relevant to your job and any tolls that were not charged by the customer in addition to your mileage.
Subtract a hundred percent of the cost of the phone and your monthly data plan if you have a different phone that you’re using for your rideshare driving only. Break your deductions between business usage and personal use if you are using your smartphone for both work and personal use.
As a courtesy to passengers, most rideshare drivers offer water and snacks. You may also purchase car accessories, such as a phone charger, your phone’s dashboard mounting device, a first aid kit and floor mats. As a business expense, you can subtract the cost of these materials.
The IRS might challenge the cost if you can’t produce records. You may be on the track for back taxes and fines in that situation. Organize your documents and records efficiently.
The most overlooked company tax deductions are at the top of the chart of business travel expenses. Do the essentials and don’t skip tax deductions because there would be dire consequences and over listing may lead you to face an IRS audit.
Drive away your IRS by confronting them head-on. Know how to deal with income taxes as a driver if you’re driving as an independent contractor.