Top 7 mistakes that Uber drivers make at tax time
For self-employed Uber drivers, tax time can be incredibly stressful. With more income statements, expenses, and tax forms to keep track of than the average taxpayer, drivers have a lot of information to wrangle before doing their taxes or handing them off to a tax preparer.
But tax time doesn’t have to be stressful. Stride’s on a mission to make managing self-employment taxes simple and painless. Part of making the process painless is avoiding the most common pitfalls. Here are some of the most common mistakes that most drivers make at tax time, and how to avoid them:
1. Drivers don’t deduct all the mileage they’re entitled to
Uber tracks some of your mileage, but not all of it — and not nearly everything that you can deduct. Uber’s driver app will record on-trip mileage, or how many miles you drive when you have a passenger in the car.
In reality, you can deduct your mileage on the way to the first passenger, between passengers, and on the way home at the end of the day. This usually results in doubling your deductible mileage. Here’s how to deduct more than just on-trip mileage if you haven’t been tracking.
Do yourself a favor and start tracking your mileage as soon as possible. Our free app Stride Tax helps you maximize your mileage deduction and more!
2. Drivers don’t write off all or any of the expenses they're allowed to deduct
Mileage isn’t the only deduction that drivers leave on the table. Deductions for car cleaning, passenger goodies, cell phone bills, and a whole lot more are available to rideshare drivers. You could end up reducing your effective tax rate significantly if you take advantage of all of them!
Here are some big ticket items that you definitely want to deduct:
- A portion of your cell phone bill
- Snacks, water, and other goodies that you buy for riders
- Your initial inspection and background check that was required in order to drive for Uber
3. Drivers aren’t prepared when they start filing
One of the many reasons people procrastinate in filing their taxes is that it feels like it will take forever to complete, when in reality, you can finish the entire process in under an hour--as long as you’re prepared.
There’s no worse feeling than starting to file your taxes, and realizing you don’t have a key document that’s needed in order to finish.
Before you start the filing process, make sure you have all of the relevant documents and information in front of you! If you’re a Stride Tax user, your exported Tax reports will organize your deductions for you. Otherwise, you can read what kind of information you’ll need to file taxes here.
4. Drivers pay taxes on Uber’s fees rather than deducting them
Did you know that as many as 50% of rideshare drivers don’t deduct the commissions and fees that are included in their 1099-K income?
Let’s break that down — when Uber and Lyft issue 1099-K forms to drivers, these forms include ALL of the money passengers paid — including Uber’s cut . Since Uber and Lyft are classified as “third party network payment providers” and facilitate payments between drivers and passengers, they have to report all of the income that passes through the app.
This means that the income reported on your 1099-K includes commissions and fees that never hit your bank account. These fees are deductible as a business expense, but about half of rideshare drivers aren’t deducting them.
When you go to file your taxes, you’ll want to have your Uber Tax Summary in front of you so that you can see how much you can deduct in fees, or use Stride’s Uber Tax Calculator to have the work done for you. You’ll also want to compare your 1099 income to what was actually deposited into your bank account (1099 - Uber’s fees = your pay) to make sure your 1099s are reflecting accurate information!
5. Drivers double deduct vehicle expenses
When you deduct your mileage, you multiply the number of business miles that you drove by the standard mileage rate ($.54 for 2016). To create the standard mileage rate, the IRS takes into account the average costs of car insurance, car payments, maintenance, gas, and depreciation (among a few other expenses), and creates an average amount that drivers should be able to deduct for every business mile that they drive.
Tracking mileage also saves you time, since it’s a lot easier to keep a mileage log than it is to track all of the expenses that go into the standard mileage rate.
This means that you have to choose between deducting your mileage, and deducting those “actual car expenses” listed above.
Deducting both your mileage and your gas means you’re effectively deducting the same expense twice. However, many drivers don’t realize that taking the mileage deduction is taking care of a lot of their other vehicle expenses at the same time. And if there’s one thing the IRS doesn’t like, it’s self-employed drivers abusing the standard mileage deduction. Taking the mileage deduction and entering gas expenses on your Schedule C is a big red flag.
6. Drivers underestimate their tax prep costs for thefirst year
If you’ve ever filed your taxes online, you’ll see that there are usually several different versions of a particular tax filing software that you can use. Most tax filing software will price their products according to what forms you need to file.
When you’re a rideshare driver, you’ll need to file a Schedule C in order to report your income and expenses. However, tax prep companies charge extra for the forms associated with self-employment. Even though you can deduct these costs as a business expense in the next year, they can still take a toll on your wallet.
This means that even if you’ve been using the free version of TurboTax for years, you’ll now need to pay around $80 for TurboTax Self-Employed just so you can file a Schedule C!
When you’re headed into tax season, try to avoid sticker shock when you’re told you’ll need to pay extra to report your rideshare income. Or better yet, file for free instead.
7. Drivers try to deduct personal expenses
A lot of rideshare drivers ask us if they can deduct expenses like charitable contributions, student loan interest, and health insurance.
Our answer? Yes — but not as a business expense!
There are a ton of deductions that you can take as a taxpayer in general, even outside the scope of rideshare taxes. However, deducting those expenses on your Schedule C against your rideshare income is a big mistake, and definitely an audit flag.
For example, the self-employed may be able to deduct the cost of their health insurance premiums. This deduction is taken on your Form 1040, not your Schedule C. Deducting it in the wrong place can cause problems for you during an audit.
When you’re preparing your tax return, make sure that you take personal deductions on your Form 1040, instead of on your business’s Schedule C!
Have some tax questions? Email our team of experts!
Disclaimer: The information contained in this Guide is not offered as legal or tax advice. The U.S. federal income tax discussion included in this Guide is for general information purposes only and is not a complete analysis or discussion of all potential tax consequences that may be relevant to a particular individual. In light of the foregoing, each individual should consult with and seek advice from such individual’s own tax advisor with respect to the tax consequences discussed herein. Any information contained in this Guide is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the U.S. Internal Revenue Code of 1986, as amended.