Last year I was working full-time, rideshare driving in NYC. As an Independent Contractor (IC), you’d suspect that my taxes on the year amounted to incredulous amounts. Rideshare drivers are considered independent contractors. And all ICs are subjected to paying taxes, because nothing is withheld from our income. That is, all of the income we receive from the Transportation Network Company (TNC) that we work with is taxable.
For people who don’t realize that ICs are responsible for paying taxes on their income; the first time filing their taxes can be quite a shocker. Especially if: a). you’re filing for the first time as a rideshare driver and 2). are unprepared and don’t know the right way to file.
Related Post: Be Your Own Independent Contractor
I filed the wrong way myself last year, and after doing hours and hours of research (by the way have you scoped out my free resource for tax filing? Just sign up for my newsletters in the box to the right to get it) I’ve realized that taxes aren’t as difficult or scary as most ICs make them out to be. In fact, you can pretty much save yourself from heavy tax burdens by doing one simple thing. And what is that thing?
Calculate your net income from any and every rideshare company that you’ve worked with in the fiscal year, and report that amount. Do not report your gross income amount(s)! A lot of rideshare drivers get their 1099’s in the mail, and instinctively enter the numbers in the boxes. This is incorrect according to the literature that I’ve read. See:
- The Tax Lives of Uber Drivers, Oei & Ring, 2015
- Can Sharing Be Taxed?, Oei & Ring, 2015
- Beyond Missclassification: The Digital Transformation of Work, Cherry, 2016
After reading all of these articles, other research online, and posts from other drivers in discussion boards; I was able to expel the notion of forking over large chunks of my income to the government for taxes. This year, I successfully paid next to nothing in taxes by filing correctly, and thereby maximizing my deductions. In fact the cost of filing (which is deductible for rideshare drivers too btw) itself was more than what I owed in taxes.
Now I’ll spare you from listing every single little expense that I included, to whittle down taxes there were a lot. I want to cover some key deductions though, namely mileage and apartment rent (which is partially deductible because I have a home office); however, almost any purchase and/or expense that I incurred last year is deductible, because I’m an IC.
Mileage Tracking Means Being Prepared to File My Taxes
Before I discovered the world of digital mileage tracking, I used to keep written records of everything. I used to store every receipt, and kept them all in a big envelope until April. This year, TurboTax was more rideshare driver friendly then ever before. In fact I even received a free subscription to QuickBooks, which tracks mileage, business expenses, and a whole host of other useful features for rideshare drivers.
Affiliate link: Get %50 off your membership with QuickBooks through my exclusive link.
Very good. Now let’s discuss how to correctly file your taxes. And take note, this procedure applies to any medium of filing (e.g., e-filing, mail-in, through a CPA). At the beginning of March, you should’ve received a 1099 form from each of the rideshare companies that you work with. This year I received three 1099s:
- 1099 MISC – from Unter, LLC an affiliate payment processing company with Uber.
- 1099 K – from Unter, LLC an affiliate of Uber.
- 1099 MISC – from the Flatiron Transit, LLC company that operates the Via app.
So three forms from two companies, what gives?
According to Oei & Ring, 2016, Uber and Lyft currently report referral bonuses and other special earnings exceeding $600 on the Form 1099-MISC. They report gross driver earnings, the bulk of rideshare drivers’ payments, on Form 1099-K. Up until 2015, both companies took the stance that they’re classified as a third-party payment organization (i.e., a middleman company like eBay, Google Wallet, Paypal, etc.) And therefore only reported payments that grossed more than $20k or 200 transactions from their drivers; however, in 2015 Uber changed it’s stance to report payments grossed by drivers no matter how small, which is represented on the Form 1099-K.
Tax Burden(s) of Form 1099 Recipients?
Okay, so I received these forms in the (electronic) mail. Instinctively, I fired up my TurboTax account, and started gathering up my deductions to combat the seemingly hefty tax sums owed. Before I plug in the numbers though, there’s an additional step required. First, I need to calculate the net payments that I received by taking out the rideshare companies’ commissions, taxes and other fees (e.g., Black Car fund for NYC rideshare drivers), and other deductions from my gross income (e.g., weekly TLC vehicle rental/lease fee); those deductions were subtracted before any payments ever hit my bank account.
For example, a lot of drivers rent or lease a TLC vehicle to use in NYC. The weekly rental cost, for me, is automatically deducted from my gross earnings. This is monies spent, not monies earned, and therefore are exempt from my taxation responsibility.
Along these lines, paying taxes on business expenses defeats the purpose of small-business ownership. And this portion of income (i.e., gross income) will likely be reported by the affiliate company that’s renting the vehicle to me to the IRS (i.e., as profit). Because this revenue is never accredited to me, it’s considered business income by the intermediary rental/lease company. And therefore shouldn’t be reported on my tax return. This could be (and likely is) one reason why so many Form 1099 recipients may actually have over-reported earnings; because they were unable to distinguish between gross and net earnings (Oei & Ring, 2016).
Nothing But Net
The most efficient way to calculate net income earned is by digging up all of my paychecks from the year. Which is not as tedious as it sounds. Most rideshare companies keep an electronic archive of weekly payments for all their drivers. Uber does so, and Via e-mails a .pdf copy of my payment weekly. Having an excel spreadsheet handy is useful; I plugged in every pay-stub amount and found the sum totals for both companies. This way I have the net figure, the taxable income amount, that I received from Uber and Via in 2016.
Related Post: How Much Can I Make Rideshare Driving in NYC?
The nice thing is that I only had to do this once. Now that I know that I need to track my income over the course of the year, I’ve setup a new spreadsheet for this. And as income comes in, it gets plugged right into that spreadsheet. So next year I’ll be able to add up the mean weekly income amounts per month to easily determine net income (and multiply by four). Also, this figure will assuredly be lower than the amount reported on any Forms 1099 that rideshare companies will provide me. Remember, those figures do not account for commission and other fees subtracted from gross income.
My Bread And Butter Deductions
After adjusting for net income I had to input my expenses. Similarly, I learned that my home office is another huge tax write-off from a friend this year. And appropriately applied the cost of roughly half my rent (~46%) towards this business expenses. Somehow the year prior I failed to report this expense; I use one bedroom of our two-bedroom apartment strictly for business purposes (hence it being an acceptable expense). So that was a big help this year.
Within TurboTax, I was prompted to report my rent amounts, the square footage of the office space, and total square footage of our apartment. They take it from there. If you have an office at home, make sure to go back through the “business expenses” section and find where to input this deduction. The software asked me a few questions first, to ensure that my office indeed qualifies.
Any portion of the return (e.g., business expenses) can be revisited, just make sure to go back before you file. Home office expenses amounted to ~$7,560 in deductions for me this year.
Finally, every rideshare driver uses mileage as a big way to maximize deductions. I find it easiest to use the standard deduction for business miles (versus the straight line or actual costs method), which gave me back $.54/mile. In 2016 I drove 20,426 miles for business which equates to ~$11,030 in deductions. Combined, the mileage and home office rent add up to $18,590. The actual costs method may have saved me even more money; however, in the future my deductions will be less and less with time using this method.
Calculating my net income reduced my tax burden by ~37% (hence why they say that renting a TLC vehicle means giving up half your weekly paycheck!). Adding the aforementioned figure against the net income (and some other business expenses as well), resulted in my taxes for 2016 being $71. Hardly the price of two full tanks of gas, and certainly an amount I had already budgeted. Also, I was owed $84 from State return in Earned Income Credit (EIC); however, I elected to have that amount applied to next year. Which means I may actually be getting money back, if I don’t apply the EIC to the following year’s return again. 🙂