The idea of becoming a rideshare driver for Lyft can be pretty appealing. It’s flexible, you work only when you want to, and you earn extra cash while being your own boss. You can use driver referral codes to get a decent sign-up bonus, and you can meet people as you drive them around. It’s a fun opportunity, but it’s also like you’re self-employed.
With that comes a certain set of responsibilities, including making sure you pay your taxes. When you work at a typical job, your taxes automatically come out of each paycheck, but as a Lyft driver, you have to make sure you pay them.
The following are things all Lyft and rideshare drivers should know when it’s tax time.
Being an Independent Contractor
One of the first things to consider when it’s tax time as a rideshare driver is whether or not you’re considered a contractor. Most rideshare drivers are technically speaking contractors.
Independent contractor means that the company you do work for you leaves it up to you as far as when you work, and they don’t provide supervision, tools or training.
Something else to know about here is the difference between 1099-Ks and 1099-MISC. Lyft, as well as Uber, considers itself a third-party payment processor, meaning they facilitate payments between you and your passengers.
A 1099-K is the form used to show customer payments, but it will show all the money including what was paid in commissions to the rideshare company you drive for.
If you drive for Lyft, you get a 1099-MISC if you earned more than $600 in bonuses, etc. and you’ll also get a 1099-K if you’ve earned at least $600 in gross ride receipts.
Even if you don’t get a 1099, you still have to pay taxes on whatever you earned, however.
Deductions can be your best friend when it’s tax time, and in the eyes of the IRS, you are essentially an independent business owner, so the expenses you’re putting toward that business may be deductions.
You can take a deduction for your car, which can be either the true expenses of operating your car for rideshare purposes or you can take the standard deduction offered by the IRS.
If you do deduct actual expenses, you’re going to have to keep records and make sure you’re only deducting what you were using for business purposes. You need to be able to support deductions through the use of mileage logs, receipts and any other documents that might be relevant.
Other potential deductions that might apply to you include the cost of things like tolls and parking and mobile phone costs that you can relate back to your work.
As a final note, mileage logs were touched on above, but they’re really important yet something most rideshare drivers don’t keep. You can track your miles using an app on your phone, and this is the best thing you can have to save on your taxes, and also prevent any challenges from the IRS when it comes to your deductions when you file.