As many people are aware, ride sharing services like Lyft are now available across the state of South Dakota. It is tempting to want to participate as a driver to make some extra income, but what should you know first before starting your new job?
As a driver for a ride sharing company, the drivers are not employees but instead are independent contractors who are self-employed. This means that at the end of the year they will receive possibly two 1099s from the company.
- 1099-K and tax Summary: This will show the Gross amount earned, and a breakdown of all the items that reduced the Gross amount down to the Net amount collected.
- 1099-MISC: If earnings are more than $600.00 in non-driving related income, like bonuses, then it will be reported here.
As an independent contractor it is the driver’s responsibility to keep up with business expenses and taxes, to include Social Security (6.5%), Medicare (1.45%) and Federal Income Taxes.
At the end of the year, drivers will complete two additional forms with their tax return:
- Schedule C – “Profit or Loss from Business (Sole Proprietorship)”
- Schedule SE – “Self-Employment Tax” (only if net income is greater than $400)
Some wonder what expenses can be deducted when driving for ride-sharing companies. Some key examples of expenses can be:
- Auto Expenses: (Schedule C – Line 9)
Keep track of these one of two ways:
- Actual expenses – keeping receipts for gas, oil, repairs, insurance, maintenance, and depreciation or
- Standard IRS mileage Deduction – Standard rate is 58 cents per mile for 2019. (Mileage log recommended)
- Water or snacks for passengers (Schedule C – Line 22)
- Tolls and Parking Fees (Schedule C – Line 10)
- Business Cell Phone (Schedule C – Line 25)
- Commissions paid to Ride-sharing company (Schedule C-Line 10)
Driving for ride-sharing companies can be a great way to bring in additional income. The most important part is to keep records! And remember, if anything is used for both work and personal, only the work expenses can be deducted on Schedule C at the end of the year. If you find that it is too much for you to calculate on your own, Ketel Thorstenson will be glad to assist you with your return.