Thinking about driving for Uber? Tax planning for your new business
Upstate
Uberis policy is to treat drivers as independent contractors, meaning that drivers are considered to be self-employed business owners. Because of this, it is essential for drivers to keep good records of income, business expenses, and mileage. Recent tax cases have highlighted the importance of proper documentation, indicating that estimated deductions lacking support will not hold up under audit
Income
At year-end,
1. Form 1099K will be provided if both 200 ride transactions occurred and earnings exceeded
2. Form 1099-Misc will be provided for earnings greater than
The amount on the 1099 may be higher than expected because it will include the fees that
Expenses
The costs for operating their vehicles for business is another significant deduction that drivers can claim. Generally, the greater of two calculations can be deducted, but a few exceptions apply. Drivers should check with a tax professional if their vehicles are leased or if they previously claimed depreciation on them for a different business. The two methods for calculating vehicle expenses are:
1. Standard mileage: Deduct
2. Actual expenses: Expenses include gas, oil, tires, insurance, registration, lease payments, depreciation, maintenance, and repairs. If the vehicle is used for personal and business use, expenses are prorated to the business amount by applying the percentage of business miles divided by the total miles driven during the year. This method requires more documentation and tracking of expenses, but if major repairs were made, it may result in a higher deduction.
For either method, the driver must know the number of miles driven for business.
In addition to vehicle expenses, drivers can deduct other costs associated with operating their ride-sharing business. It is important to document and claim only expenses incurred for the business. Personal expenses cannot be deducted. For mixeduse items, only the portion used for the business can be claimed. Examples of other operating expenses are: parking fees; tolls; cell phone/data plans; additional liability insurance;
Self-employed individuals can also deduct the cost of health-insurance premiurns, and can reduce their tax bill even more by making contributions to qualified retirement plans. There are several types of plans to choose from including traditional and Rotil IRAs, SEP and SIMPLE IRAs, and individual 401 (k) accounts. Drivers should speak with a tax or financial advisor regarding retirement options.
Estimated taxes
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