The Taxation of the “Uber” Economy

Posted on Tue, Jan 24, 2017 ©2021 Drucker & Scaccetti

STEPHANIE OTAKE - OFFICIAL - 2017.jpgBy: Stephanie Otake, CPA

 

Making extra cash with Uber or Lyft has become a popular pastime, but make sure you consider the tax implications that come with it.  In this blog post, we’ll pose and answer common questions of those taking part in the so-called “sharing economy.”

 

By now, most have either heard of Uber or Lyft, or have used them. The ride-on-demand service from our cell phones has become a formidable competitor to the taxi cab industry. Many people are taking advantage of these online platforms to make money using their personal property—in this case, their car. Receiving income by providing services from these activities is taxable and must be reported to the IRS.

 

As an Uber or Lyft driver there are several tax-related questions you should ask yourself as we approach the April 15th tax deadline.

 

Am I an employee?

You are an independent contractor, not an employee. The IRS makes the distinction between employee and independent contractor by looking at the financial and behavioral relationship between the two parties. Since Uber and Lyft do not dictate how or when you should complete your job, nor do they provide you with the equipment needed to carry out the service, you fall under the independent contractor status. This is important to know because as an independent contractor, you are considered self-employed. And, this likely presents a different set of tax circumstances than your day job.

 

What tax forms will I receive?

Since you are not an employee, you will not receive a W-2 and taxes will not be withheld on your behalf during the year. You should receive a form 1099-MISC or 1099-K from Uber or Lyft that reports the income you made. Some drivers may not receive a 1099 if the income was less than $600, however, that income is still reportable. 

 

Where do I report the income? How much tax will I have to pay?

You would report your income on Schedule C of your individual return and calculate your self-employment income. Because Uber or Lyft are not withholding taxes on your behalf, it now becomes your responsibility to pay income tax and self-employment tax. If you expect to have a tax liability of at least $1,000, then estimated tax payments should be made on a quarterly basis. If not enough estimated tax is paid, you could be hit with underpayment penalties.

 

What expenses can I deduct?

A benefit to being self-employed is you can reduce the income you received by deducting business-related expenses. Auto expenses will probably be the largest deduction you can take by using one of two methods: standard mileage or actual expenses. Other examples of deductible expenses are, but are not limited to, snacks and refreshments for passengers, tax preparation fees related to the business, half of self-employment tax paid, self-employed health insurance, and cell phone expenses related to the business. Some deductions are not as clear so it is best to consult your tax advisor. For all business-related expenses, good documentation is necessary and only the portion related to the business use is deductible.

 

What are the Standard Mileage Rates for 2016 and 2017?

As a shared economy driver, knowing the standard mileage rates will help you determine whether you want to deduct mileage or actual expenses from your tax returns.  Below are the IRS-issued rates for 2016 and 2017:

2016 Standard Mileage Rates

2017 Standard Mileage Rates

54 cents per mile for business miles driven

53.5 cents per mile for business miles driven

 

You may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles simultaneously.

 

The Tax Warriors® at Drucker & Scaccetti, can help evaluate your specific scenario if you are receiving income from any type of sharing economy service, including those related to real estate, such as AirBNB or HomeAway; and just in time for the upcoming tax filing season!  Submit your question(s) here.  We’d be happy to help.

Topics: Tax Deductions, Mileage Rates, business expenses, independent contractor, Form 1099, Tax, Taxes, Airbnb, Uber, Lyft, sharing economy

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