Posted on December 13, 2021December 13, 2021 by Jan Roberg

Filing Your Uber Driver Taxes

If you’ve been earning money driving an Uber in 2021, here’s some things that might help you when filing your taxes.

Whether you’re doing them yourself, of paying someone to prepare your tax return for you, the most important thing you need is your Uber statement. Here’s an example of one from the 2020 tax year.

As you can see, it shows the gross payment, the expenses, and the net payout. Also, what’s really important is that it shows the miles that you drove. You really need that mileage number for your taxes.

There’s a second page to that statement and it looks like this:

This is really helpful because it breaks down what those expenses were. It also breaks down any additional compensation that you received. You’ll see in this example that the taxpayer received $704.40 in incentives and $1.77 in other miscellaneous payment.

You would think that Uber would send out a 1099NEC for the $9,622.15 – the gross payment that they reported on page one – but they’re a little different. They only give you a 1099NEC for your Additional Earnings. In this case, the taxpayer got a 1099 for the $706. She still has to report the full $9,622 of earnings though.

So how do you do that?

For the vast majority of people, you’re going to be doing this on a form called Schedule C. And it’s just another form that’s a part of your regular 1040 tax return. You don’t file a separate return for your Uber income, it’s all combined with your main taxes.

Here’s a link to get the form: https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Ideally, you should be using tax software to prepare your taxes. I’m showing you the forms and where things go so that you know what it’s supposed to look like when you’re done.

You see that Box B? Enter code from instructions? If you’re an Uber driver (or Lyft, or Door Dash, anything like that) your code is 485300 for taxi, limousine and ride sharing services.

One line F it asks your Accounting method: you’re going to pick cash.

Line G – did you “materially participate” in the operation of this business in 2021? Well Yes – if you drove, you participated.

Line H – you just check that box if it’s the first year you’ve done it.

Line I – Did you make payments that require you to issue a 1099? Probably not. Uber drivers are solo workers. So you’re probably not issuing any 1099s. If you’re an Uber driver who’s hiring other people to work for you, you should probably check with a tax professional.

Now we’re into the Income portion of your return. Gross receipts. That’s easy – It’s right on the Uber statement. Using the example from above, you’d put $9,622 on line 1.

A note about 1099s and computer software: If you get a separate 1099 from Uber like the taxpayer in the example, you’re going to need to enter that 1099NEC as a separate document. In that case, you’d enter the Gross Trip Earnings of $8916 on the Schedule C in your tax software and the software should also send the 1099 income to the Schedule C, so you still wind up with $9,622 on line 1. The nice thing is, the Uber statement breaks it out for you.

Now in the expense portion of the Schedule C – probably the most important part is your car and truck expenses which is line 9, but I’m going to skip over that for a minute and get the easy part first, which is your other expenses. They would go on line 27a. I like to list them out separately, but that’s just me. I also round to the nearest dollar, the IRS doesn’t want to look at pennies and most tax software won’t even acknowledge cents.

A note about Cost of Goods Sold: As an Uber driver, you’re selling a service, not a product. You’ll leave the whole of Part III Cost of Goods Sold section blank.

So now you’ve got your main expenses in. It’s time to add in your mileage. Mileage goes on page 2 of your Schedule C in Part IV. Let’s go over those questions one at a time.

Line 43: When did you place your vehicle in service for business purposes? It means, when did you start driving for Uber that’s all that means.

Line 44: Of the total number of miles your drove your vehicle during 2021, enter the number of miles you used your vehicle for:

a. Business

b. Commuting

c. Other

You have the easy answer to a Business miles – because Uber gives it to you right on the statement. In this example, it was 6,992 miles.

Line B – you leave blank because really for Uber you’re not commuting.

Line C other – this seems to be the hardest one for most people. How many non-business miles did you put on the car this year? People often ignore this, but it’s important. And if you ever get audited, the IRS will want to know. In this example, the person only put 8,632 miles on their car for the entire year. So we’d put 1640 down for other. (8,632 miles for the year minus the 6,992 miles driven for Uber.)

And then you’ve got the Four Questions.

45. Was your vehicle available for personal use during off-duty hours? Yes or No.

46. Do you (or your spouse) have another vehicle available for personal use? Yes or No

47a. Do you have evidence to support your deduction? Yes – because Uber gave you evidence.

47b. If yes, is the evidence written? Yes – because it’s written right in that Uber document.

Now if you’re using tax software, it will compute the auto expense for you and automatically put it on line 9. But if you’re doing this by hand, you’d take the 2021 mileage rate, which is 56 cents per mile, and multiply it by the 6,992 business miles and you get $3,915.52 – which you’re going to round up to 3916.

So, in this example, after you’ve taken out your expenses you’ve only got $2,684 of taxable income.

(Gross income of $9,622 minus auto expenses of $3,916 minus other expenses of $3,022 equals net profit of $2,684.)

That number will flow onto line 3 of the Schedule 1 which flows onto line 8 of your regular 1040. (Don’t be intimidated by these line numbers and schedules. Use a tax software and it should all be automatic.)

The part that gets a little hinky is the Self-Employment tax. Once again, the software should compute it for you. I’m just telling you so that you know to look for it. Self-employment tax is computed on Schedule SE. If you’re doing this by hand, your net profit goes on line 2, then literally you’re following the instructions line by line until you get to the bottom of the page.

The quick and dirty check to make sure the math is right is you take your net income and multiply it by .9235, then multiply that by .153. That’s going to be your self-employment tax. That goes on line 12 of Schedule SE and on line 4 of your Schedule 2 and that flow onto line 23 of your 1040. In this case, the self-employment tax is $379. (2684 times .9235 times .153 = $379.)

And there’s one more thing. I promise, this isn’t too bad. You get a deduction for ½ of the self-employment tax that you have to pay. We don’t want to miss any deductions right? So if the self-employment tax is $379, half of that is $190 (because we rounded up). It’s going to go on line 15 of Schedule 1 which will flow to line 10 of your 1040.

I’m talking about a lot of forms and Schedules here and that sounds intimidating, but don’t let it scare you. Your tax software should generate everything. I’m mentioning the forms so that you know what to look for. If you’re using to doing just a straight 1040 with no extra schedules, it might seem weird to have all these other pages print out. But a lot of the forms only have one or two items on them.

If you’re filing a return with Uber income on it, in addition to your 1040 tax form you should also have:

Schedule 1-Additional income and adjustments to income

Schedule 2-Additional taxes

Schedule C – Profit or loss from business (This is the heart and sole of your business taxes.)

Schedule SE – Self-employment tax

Here’s a link so that you can see how they’d look using the numbers in the example. https://robergtaxsolutions.com/wp-content/uploads/2021/12/2021-Fake-Uber-Driver-1.pdf

I always recommend talking to a professional to do your taxes. But I also recognize that not everyone can afford it. Hopefully, this can help you with your Uber Tax Return.

FAQs

I won’t have time to answer your individual questions on this, but I do have some questions that people ask me all the time so I thought I’d address them here.

Q: I drove more than the mileage it says on my Uber statement. Can I claim that mileage as well?

A: Yes. You’ll just need to document it with some type of a mileage log. I like the MileIQ app, but you can use whatever works best for you. (I don’t get paid by Mile IQ, I just like their app.)

Q: I paid a lot of money for my gas and car repairs. I want to claim those expenses. Can I add those to my mileage?

A: The mileage expense includes your gas and repairs. It’s an either/or type of deduction. If you prefer to claim your actual expenses, that’s fine. Just make sure you document them with receipts. Remember, the amount of your actual expenses you can claim is limited by the percentage you used the car for business. It’s also important to remember that if you claim your actual expenses the first year that you use a vehicle – then you can NEVER claim your mileage in a future year.

Q: I bought a new Lexus for $40,000 and I want to write it off as a business expense. Can I do that?

A: That’s outside the scope of this blog post. (There’s a whole lot of issues there.) Generally, I’m not in favor of it, but this is one of those times where if you want to write of the purchase of a new vehicle, it’s worth the money to get professional tax help.

Q: I have other expenses besides my miles and what’s on my Uber statement. Can I claim those?

A: Yes. Some extra expenses might be bottled water or snacks for your passengers or your cell phone usage. Normal car maintenance would be included in your mileage, but one driver I know had to pay to have her car cleaned after a drunk passenger threw up all over her back seat. I wouldn’t consider that to be a “normal” auto expense so I included that as an additional business expense on her return.

Q: I didn’t just drive for Uber, I also drove for Lyft and Door Dash. Do I need a separate Schedule C for each job?

A: No. You can combine your Uber, Lyft and other driving jobs onto one Schedule C because they’re all in the same category. Now, if you drove for Uber and moonlighted as a DJ or some other completely unrelated job, then you’d want to prepare a separate Schedule C for that business.

Posted on October 19, 2012May 31, 2016 by Jan Roberg

Say Good-Bye to the Payroll Tax Holiday

Have you been watching the presidential debates? I have. I’ve heard both sides trot their “tax plans” out and I’ve heard a lot about what both Governor Romney and President Obama say they’re going to do with taxes if elected. Here’s something I haven’t heard—what about the payroll tax holiday?

What’s that you ask? The payroll tax holiday is the 2% tax cut we got back in 2011 and it got extended for 2012. Nobody’s talking about protecting it now. That means you can pretty much expect your taxes to go up starting with your first paycheck in January. How much? Well, if you make $30,000 a year and get paid once a month—your pay would go down by $50 per paycheck.

Here’s a link to the Kiplinger calculator so that you can figure out exactly how much this will affect you and your paycheck: http://www.kiplinger.com/tools/Social_Security_payroll_tax_increase_calculator/index.php

Full disclosure here: I thought the payroll tax holiday was a big mistake in the first place. That’s money that goes into the Social Security fund—you know the one the tax policy wonks keep saying is going to go bankrupt? So we’ll take money from that fund? I wasn’t happy with that.

But now that everyone has gotten used to that 2% “tax holiday”, when your first paycheck in January comes and it’s a little lighter, you’re certainly going to feel like you’ve had a tax increase, even though technically, it’s not an increase.

Seriously, it’s not considered to be a tax increase because it’s an “expired tax reduction.” And that’s why both sides can say they are not raising taxes—they’re just letting this reduction slide into oblivion.

Personally, I’m just not that sophisticated. I like plain language. Taxes are going to go up or they’re going to go down, or they’re going to stay the same. I know that come January, our taxes are going to go up no matter what the politicians call it.

Posted on July 29, 2011May 31, 2016 by Jan Roberg

Small Business Taxes for Beginners: How Much to Set Aside

When you start a new business, one of the hardest things to figure out is how much money you need to set aside to pay your taxes.

One question I hear all the time is: How much should I put away to pay my business taxes? If you’ve been in business for a few years, you probably have a good feel for how much you take in versus how much your expenses are and what your overall tax bracket is. After a while, you’ll be able to make estimated tax payments with fairly good accuracy. But if you’re just starting out and you don’t have a lot of experience, it’s really hard to guess. This post is for you.

Starting with the very first payment you receive, put away 10% of your revenue. Ideally, you will set up a special savings account at a bank to escrow your taxes, but you can use a piggy bank at home for all I care. Set aside 10% of your revenue.

But I thought my self-employment taxes were more than that? They are. Generally, self employment taxes are 15% of your income, and then you pay your regular tax rate on top of that. If you’re in the 25% tax bracket, the taxes on your business are 40%. This puts people into a panic—most people don’t pay 40% of their revenues, you have to back out your expenses first.

So shouldn’t I put away 40% of my profit? Yes, after you’ve got your business settled in and running smoothly. In the beginning, most start ups lose money, so your business taxes might be zero. You could even reduce your other taxes by reporting a business loss. Setting aside the 10% is your safety net. 10% is easy. 10% is a number you can live with. Most importantly, 10% might save your life.

You were right, I had a loss my first year. Can I spend the tax money that I had set aside? No. You’re going to add to it the next year so that you’ll have enough money to pay taxes then.
What if I have a loss for my second year of business? Keep setting aside 10%. There are basically three things that could happen:

Eventually your business will start making a profit and you’ll be glad that you set aside some money to pay your taxes.

Your business will never make money, so the IRS will decide to call your business a hobby and you’ll have to pay back the taxes you avoided by claiming business losses. We don’t want that to happen! But again, you’ll be glad you have that money set aside.

Your business doesn’t make any money and you’re smart enough to get out before the IRS declares you to have a hobby. Now you’ve got a nice little savings account started.

The 10% rule is a win/win situation for you no matter what.

I make really good income as a contract laborer and I don’t have any expenses. What if I expect to definitely make a profit my first year? A good example of this situation would be an independent IT contractor; a lot of these folks are profitable from day one. If you’ve got a similar situation, I’d hold back 25% at a minimum, 30% is better. If you’re married and you’re adding your income onto a spouse’s earnings, I’d put away 40% right from the start. If you anticipate over $100,000 of income your first year, you should sit down with a professional and do some strategy planning. Your self-employment taxes will actually go down after $106,800 but you could be in a higher overall tax bracket.

Face it, if you’re making over $100,000 a year, you can afford to pay the consulting fee to an accountant. By the way, you’ll write that off as a business deduction.

Okay, so I set aside 10% of my revenue for my business taxes the first year but it wasn’t enough. Now what do I do? First, be glad that at least you had the 10% set aside. Now you’ve got some figures to work with for next year. Based upon your tax return, you can now compute a percentage for you to set aside. Maybe it’s 20%, maybe 30%. Once again, you’ll set aside a percentage of your revenues. You’ll make estimated tax payments every quarter based on what you owed last year. Let’s say you had a balance due of $4,000 last year, then you’ll make quarterly estimated tax payments of $1,000 each this year. You’re still putting money in the bank for your taxes and you’ll pay the estimated taxes from your set-aside fund.

I see a lot of people with small businesses get into tax trouble. They scrape to get ahead and then when success finally comes, the tax bill is a big slap in the face. Success is sweet, but there’s a price. If you start from day one setting aside a portion of your revenue for taxes, you’ll be prepared.

Posted on March 2, 2011May 31, 2016 by Jan Roberg

Why You Might Want to Let Your Spouse Own Your Business

Photo by Living in Monrovia at Flickr.com

First and foremost—this post will only apply to a limited number of people, so please don’t go changing your business ownership based on the title.

One of the downsides of owning your own business is that you have to pay self employment tax. Self employment tax is 15.3% of your profit, you pay it in addition to your regular tax rate. So, if you’re in the 25% income tax bracket, you’re actually paying 40.3% in taxes on your self employment income. That’s a lot of tax.

Social security makes up 12.4% of that. (8.4% for 2011 only.) The maximum amount of your earnings that are subject to Social Security taxes is $106,800. Once you cross that threshold, you don’t pay Social Security tax anymore for the year. If you’re in that situation, you know how great it is when your company quits withholding your Social Security, it’s like a temporary pay raise.

So let’s say that you own a small business with a net profit of $50,000. Your husband gross pay is $125,000 a year. He’s already completely paid up for his Social Security. After claiming all of your deductions, let’s say your taxable income is $135,000 – that’s still in the 25% tax bracket. Your tax liability would be $33,765. That would be $26,115 for your regular tax plus another $7,650 for your self employment tax.

But what if your husband owned the business instead of you? He’s already maxed out his social security taxes. In this case, your total tax liability would be $27,565. That would be the same $26,115 for the regular tax, plus only $1450 for the self employment tax (it would be the Medicare portion.) In this example, it’s a total tax savings of over $6,000.

What are the downsides? Obviously, you wouldn’t want to have your business in your spouse’s name if divorce were a possibility. It wouldn’t make sense to do this if your spouse’s wage income wasn’t above or at least near the social security maximum threshold. Also, by putting the business in your spouse’s name, then you’re not contributing to your social security pool for the future. See that $6,000 saved in the scenario above? The best thing to do with that money is to put it towards your retirement.

Another issue is continuity. If you’ve had your business in your name for 20 years, why would you change it now? On the other hand, if you’re starting a new venture maybe it makes sense to set it up that way. You may have other perfectly legitimate reasons for not doing this as well. It’s an option for saving some money, certainly not a requirement.

Posted on September 24, 2010August 15, 2017 by Jan Roberg

Small Business Bill Passes!

The small business bill that’s been kicking around in Congress (for what seems like ages) has finally passed. I usually don’t get too excited about small business bills because what Congress considers to be a small business is much bigger than the business I’m in or the ones that I work with. I have what’s called a “micro business”, us micro business owners work alone or have up to three employees. I even belong to a group called “Tiny Business/Mighty Profits”, we’re all in the same boat–we own tiny businesses and hope to earn mighty profits. We’re like the silent majority of the business world, we’re out there in great numbers but we are not who Congress is catering to with their tax bills.

Congress generally considers small businesses to have 100 employees or less. There are different standards for different industries. For example my industry is tax preparation. According to the standards set forth by the U.S. Small Business Administration, to qualify as a small business, a tax preparation service’s annual receipts must be $7 million dollars or less. I’m definitely in the “or less” category.

For us micro business owners, most of the legislation allowing increased deductions for new equipment and research and development won’t be affecting us. We’re not big enough to even reach the limits that were already available.

But the small business bill does throw a bone to us little guys! Now, we can write off our health insurance as an expense against our business income. We’ve been able to take a deduction for our health insurance to offset our regular income in the past, but now our health insurance reduces our self employment tax. Last year, I paid $6,000 for my private health insurance. Self employment tax is 15.3%–that would save me $918 on my health insurance. Woo Hoo!

The best part–this new rule is retroactive for the 2010 tax season. The worst part, is it’s only good for the 2010 tax season. It may be a one shot wonder, but take it while you can get it.