There is no a free ride when it comes to tax time, that is true for both Uber drivers and their passengers. The contentious app-based ride-sharing service and its rival, Lyft, serve as a source of income for millions of people across the globe. However, tax experts have discovered that most of these self-employed drivers are working under some misconceptions. The most popular misconception is that their incomes are tax-free.
Unlike the average taxpayer, drivers have more income reports, expenditures, and tax forms to monitor. They handle a lot of information before preparing their taxes or seeking the services of a tax professional. One of the greatest challenges that Lyft and Uber drivers face is handling the paperwork correctly. Fortunately, Stride has stepped in to make handling self-employment or Uber taxes taxes simple and stress-free. Keeping off the most common mistakes is one of the best strategies for making the process simple. Below are top 7 mistakes that Uber and Lyft drivers make at tax time.
Drivers fail to maximize their mileage deduction:
Uber monitors and records a portion of your entire mileage and some of the recorded mileage is not deductible. The Uber’s driver app is designed to record the number of miles you cover when a passenger is in the car. Surprisingly, you can take away your mileage on the way to pick the first customer, between customers, and on the way to your home after closing the business for the day. Once you begin tracking your mileage, your deductible mileage will double. Stride Tax app offers you an opportunity to get the most out of your mileage deduction and enjoy a wide array of actionable tax tip
Drivers do not deduct all expenses they are entitled to:
Some of the Uber and Lyft drivers think that mileage is the only deduction they can subtract from their taxes. Ride share drivers can write off a broad range of expense, including cell phone bills, car cleaning, passenger goodies, and other tools they require to carry out their jobs effectively. If you capitalize on all the deductible expenses, you will reduce your tax rate considerably. Do not forget to deduct a certain portion of your cell phone bill. Keep records to show how you separated the portion for personal use from the business-use one. Deduct the expenses you incur purchasing refreshments and other goodies for passengers. Additionally, write off the background check and preliminary inspection that had to be carried out for you to drive for Uber.
Here is a list of a tax deductible expenses:
Car Cleaning Mileage
Passenger Goodies Cell Phone Gears
Cell Phone Purchase Cell Phone Service
Dash Cam Inspections
Parking Fees Tolls
Music and Paid Apps Roadside Assistance
Car Loan Interest Food and Drinks
Health Insurance Oil Change
Gas Car Insurance
Car Repairs Car Depreciation
Lack of proper preparation during the filing process:
Most people tend to postpone filing their taxes since they think the process requires a lot of time. The truth is that with proper preparation, you can complete the whole process in less than an hour. Before you begin the filing process, ensure that you have acquired all the necessary information and documents. If you already have the Stride Tax, use the exported Tax reports to organize all your deductions. Alternatively, you can find out what form of information you will require filing taxes here. You can also organize all your receipts using CamScanner. Download the application you will love it.
Drivers do not have a proper record keeping system:
Poor record keeping and tracking of expenses are some of the problems that ride share drivers face. It is important for Lyft and Uber drivers to keep good expenditure records. You should save the receipt immediately you receive it. You must ensure that the receipt displays the time, date, amount, and nature of the business. IRS needs to see those four things in your records when they are auditing your business expenses. Document all your expenses even those you are not sure if they are deductible.
Drivers have the habit of double deducting car expenses:
When calculating the mileage you need to deduct; you should carry out a multiplication of the number of business miles covered and standard mileage rate, which was $0.54 in 2016. The IRS considers the average costs of car payments, gas, car insurance, depreciation, and a few other expenditures when creating the standard mileage rate. Then, it comes up with an average amount that drivers ought to deduct for each business mile they cover while driving. Writing off your gas and mileage translates to subtracting the same expenditure twice. In order to avoid problems with IRS, you must understand that mileage deduction takes care of a large portion your vehicle expenses simultaneously.
Drivers attempt to take away their personal expenses:
Many rideshare drivers try to subtract personal expenses such as health insurance, student loan interests, and charitable donations for their Schedule C against their rideshare earnings. This action is a big mistake and absolutely an audit flag. However, it does not mean you cannot deduct your personal expenses. The idea is to deduct in the right places to avoid auditing issues. For instance, you can take away your expenditure on health insurance premiums from your Form 1040 but not Schedule C.
Drivers incur tax expenses on Uber’s fees instead of deducting them:
About 50 percent of ride share drivers do not subtract fees and commissions that are added to their 1099-k income. Uber and Lyft fall into a category of third-party providers of payment and avail a platform whereby passengers can pay the drivers. They must report to the IRS all the money that passes via the app. Therefore, the earnings reported on your 1099-k consists of fees and commissions that did not get into your bank account. You should deduct these fees as a business expense. You can go through your Uber Tax Summary to find out the amount of fees you can deduct from your tax or make your work easier by using Stride’s Uber Tax Calculator.