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How to File your Taxes as a Uber Driver

How to File your Taxes as a Uber Driver
Ines Zemelman, EA
29 September 2021

Uber Driver Proud Business Owner

As an UBER driver, you are an independent business owner, not an employee. Tax rules are quite different for employees and an owner with his or her own business. The distinction looks to whether you are independent. Do you control?

Business owner or employee, which are you?

Resolving whether you’re independent or on a job can ask these questions: are you getting instruction, evaluations, training? Want to read more? See IRS site: Understanding Employee vs. Contractor Designation.

As a UBER driver, you’re almost certainly an independent contractor. The good news is this generally means when you’re doing your UBER driver taxes, you get more business deductions. 

Your deductions go on the business owner schedule of the Form 1040 Schedule C. Your income, fees, tips, are reported on the same form as your expenses.

Being an independent contractor, having your own business, has its tax advantages. You get these deductions whether you itemize on Schedule A or use the standard deduction. IRS Pub. 535 helps with business expenses.

A key expense for you will be the auto, whether owned or rented. You can deduct auto expenses based on business miles and the cents-per-mile rate, or you can track actual expenses. The standard mileage rate for 2020 is 57.5 cents per mile. The 2021 mileage rate went down slightly, which is rare, to 56 cents per mile. Under either method of measuring auto expense, document your business miles in some sort of written, retainable form with details. Unsupported business expenses may be disallowed by the IRS.

Organize your records in a way to have good, accurate back-up for the figures that will go on your self-employment tax return. This will save taxes.

Business Owners Pay Income Tax on Net Business Income

The federal income tax rates go up depending on the level of income. The brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%.

If you have other income already, the added income as a UBER driver may be pushed up into the higher brackets.

How to better understand the importance of deductions? Tax deductions save tax according to your bracket. If you’re in the 24% bracket, a $100 business expense saves you $24 in income tax, so you’re out only $76. Look for expenses relating to your business.

We did say “taxes” in plural. There may be a state tax you have to file, and there are taxes buried in the gas prices, which are just auto expenses to you.

The main other “big tax” is the self-employment tax.

Business Owner's Pay All of the Self-Employment Tax

The comparable Social Security tax on employees is split between the employer and employee. As an independent business owner, you have to pay all of the self-employment tax.

There are many, many detailed tax rules but the main test for deductibility is whether the expense is ordinary and necessary. Unsupported business expenses may be disallowed by the IRS as to the income tax and this tax. Supported business expenses will save income tax and this tax.

The self-employment tax doesn’t have rates as high as the income tax, but it is significant.

The current self-employment tax rate is 15.3% - 12.4% Social Security plus 2.9% Medicare tax. The 12.4% part of the equation has a maximum. It doesn’t apply after 2021 net business income exceeds $142,800. 

There can also be another 9/10 of a percent Medicare tax at certain income levels. 

The business income subject to self-employment tax may vary depending on your wages. The self-employment tax has a maximum of income that can be affected by your having wages and your UBER business.

Other factors that help with this tax. Usually, 92.35% of your business income is subject to this tax. Also, half of your self-employment tax is generally deductible. This tax is computed on the 1040’s Schedule SE.

Some deductions don’t apply in computing this tax. There’s a 20% of business income deduction. This deduction only applies with the income tax. It doesn’t reduce your business income subject to the self-employment tax.

Generally, business deductions usually reduce your income tax and self-employment tax.

Uber Driver Estimated Tax Payments

Business owner tax work goes on all year round. Be prepared, regularly schedule some time to work on your taxes and your books.

UBER drivers, like other business owners, prepare to pay estimated taxes quarterly. If you wait until after year-end and just pay your taxes when due, you can usually expect penalty notices from the IRS.

Estimated payments are generally due April 15th, June 15th, September 15th, and January 15th. See IRS Form 1040-ES and the estimated tax form for your state. If your state has an income tax, it may have penalties too for not paying quarterly.

Business Owners Focus on the Tax Details

You and the IRS will get 1099 forms reporting the income you receive from Uber or others paying you to drive. Is tip income taxable even if not on the forms? Yes.

Following are additional expenses considering the nature of this business:

  1. telephone (or some business percentage if less than 100%);

  2. food and drink given passengers (but usually not your own food and drink);

  3. business insurance;

  4. fees and charges of Uber;

  5. parking, toll, airport fees (unless reimbursed);

  6. home office (IRS rules permit some deductions if part of your residence is devoted exclusively to the business, including your bookkeeping);

  7. office supplies;

  8. credit card and similar transaction fees relating to the business.

Uber may be reporting deductible business expenses that are charged back to you. These are not your only deductible expenses. Occasionally, there are special rules making an expense nondeductible even if related to your business. Traffic tickets are a good example.

Finally, keep good, timely records. It is essential when taxes are prepared, and if the IRS ever asks questions.

Ines Zemelman, EA
Founder of TFX