fbpx
Rideshare and Taxes | Complete Guide
Rideshare and Taxes | 2020 Complete Guide

Rideshare and Taxes | 2020 Complete Guide

Share on linkedin
LinkedIn
Share on facebook
Facebook
Share on twitter
Twitter

By now, you’ve heard of Uber and/or Lyft. They are called “rideshare” jobs, simply because you are sharing your ride with someone by giving them a lift from one location to another. This article will touch on the basics of ridesharing in general as well as rideshare and taxes.

We’ll also cover how to join Uber and/or Lyft, what it takes, what the requirements are, how much money you can make, and how to sign up and join in on the fun today!

Also, we’ll go into detail about the tax implications that come with ridesharing. It can be tricky, but we’ll look at the tax details, so you can see what to expect come January when Uber and/or Lyft will send you your 1099 forms so that you can file your taxes, including your ridesharing side hustle.

What is Rideshare?

Rideshare is a service that you arrange like a Taxi to drive a passenger (and other passengers) on a one-time trip to a specific location. You are allowing someone to “share your ride (vehicle),” which is why it’s called Rideshare.

The shared rides are usually arranged via a mobile application. The two major companies that are used are Uber and Lyft. While you can arrange for a driver to take you to multiple locations, that is not a standard practice. Uber or Lyft is for a one-way ticket to a pre-set destination.

To qualify to be a rideshare driver, you have to meet certain qualifications. By meeting these requirements, passengers can feel assured knowing that you are a reliable, safe driver who has a clean, smoke-free vehicle that they can rely on to get them from point A to point B.

How much can I make as a Rideshare driver?

According to Business News Daily, the average Uber or Lyft driver makes about $15 to $20/hour. Of course, you have to meet the requirements to become a driver before you can make any money.

You can make the most money by driving during peak times. Usually, the rideshare app will tell you when there’s a hot period and in what location you should be in to find those hot passengers.

For example, wealthy students looking to party downtown who just need a ride getting to the right club may pay better than the average passenger looking for a ride to the airport.

Sometimes, it’s just pure luck. You may find one passenger tips well while another one just pays for the ride, not leaving any tip whatsoever.

How can I become a Rideshare driver?

To become an Uber driver, you must be at least 21 years old with 3 years of experience driving in the United States or be at least 23 years old with one or more years of United States driving experience.

Uber requires:

  • Valid Driver’s License
  • Current Vehicle Registration
  • Clean Driving Record
  • No Criminal History

They will run a background check for the last 7 years; you can’t have any DUI, drug-related offense, fatal accident, history of reckless driving, or a criminal record during that period of time.

Lyft’s requirements are very similar, but they allow 21-year-olds with only 1 year of driving experience to drive for them, but for Lyft, you cannot have 3 or more moving violations in the past 3 years, any major moving violation in the past 3 years or any driving-related conviction in the last 7 years. They also check for DUI’s and drug-related offenses in the last 7 years.

You must also meet vehicle requirements for both companies. To read about the vehicle requirements for Uber, check out their official website. To learn about Lyft’s vehicle requirements, check out their official website.

All vehicles that you wish to use for Uber or Lyft must pass an official vehicle inspection. Once passed, you just need to upload the vehicle inspection paperwork to your Uber or Lyft profile.

Can I drive for both Uber and Lyft?

Yes! It may take a little getting used to, but you can certainly drive for both. Having both apps going can prove to be quite beneficial, in fact. If one is showing it’s dead out there (no one needs a lift), switch over to the other one. Often, while one shows nothing going on, the other one is booming.

It may take a little extra work to sign up for both, to upload all the necessary documents, and to go through the application process for both companies, but it may prove to be worth it in the end.

There’s no reason not to give both of them a try. You may find you like one more than the other, and you can stick with the one that has shown to be more fruitful.

What documents do Uber and Lyft require I have?

The main documents you will need to have ready when you submit your application are the following:

  • Your current (up to date) driver’s license
  • The vehicle registration for the car you plan to drive with
  • Valid proof of insurance (up to date)

How can I apply to be an Uber or Lyft driver?

As a Rideshare driver, do I have to pay taxes?

If you are a driver, you will have to pay taxes on the money you earned from ridesharing during the tax year. There are deductions you can use to offset your additional income.

The taxes you have to pay are self-employment taxes because, as a driver, you are self-employed. This means essentially, you are a small business owner; you just own a tiny business that you operate with your vehicle!

Because you are self-employed, you are required to pay self-employment taxes on top of your regular income taxes.

During tax season, many drivers just “want to get it over with” and rush to file it in the easiest way possible, but if you just take the time to file it right, you won’t be caught off guard with a huge unexpected tax bill.

What form will be sent to me for tax purposes?

Uber and Lyft send out 1099 forms. You should receive them by January 31. Most likely, you will receive a 1099-MISC form: Miscellaneous Income. If you make over $20,000 in payments from passengers and have over 200 transactions (rides), you should receive a 1099-K form: Payment Card and Third Party Network Transactions.

These forms provide the details on how much you made during the year, what fees were taken out, and how many miles you drove for them. Since Uber and Lyft are required to send out the driving summaries (the 1099 forms) by the end of January, if you haven’t received yours by them, contact them directly.

To contact Uber, try one of these methods:

To contact Lyft, try one of these methods:

You should receive a tax summary from Uber and Lyft. A tax summary is not an official IRS document, but it summarizes your activity for the year. Check here for examples of what the summary should look like.

What kind of records do I need to keep?

Keep records and save receipts in case you get audited by the IRS. While Uber and Lyft should provide you with everything you need on your 1099 form, it’s best to keep your own records as well to ensure that everything is accurate.

Maintain an accurate mileage log for the tax year. Follow this link to learn how to keep the best mileage logs.  A mileage log is a valuable document that you can maintain if you are a full-time driver or even if you just use Uber, Lyft, or another rideshare service as a side hustle.

Conclusion

You should now have a clear picture of how ridesharing works, what it takes to become a driver for either company, and how to file taxes as a self-employed individual.

Do you still have questions? No problem! Here at Borshoff Consulting, we specialize in taxes of all kinds and can help you get your taxes done accurately and on time. You can trust Indiana’s tax expert to help you get your taxes done correctly the first time around!

Share on linkedin
LinkedIn
Share on facebook
Facebook
Share on twitter
Twitter

More to explorer

How Will My Inheritance be Taxed?

How Will My Inheritance be Taxed?

It’s never pleasant to think about the death of a loved one, but if there is the possibility that you will receive

7 Things the IRS Doesn't Want You To Know cover

7 THINGS THE IRS DOESN'T WANT YOU TO KNOW

Download our guide to ensure you know everything you need to and are prepared to deal with the IRS.