It’s Friday night and all of your “couples” friends are on double dates or home watching HGTV. So what are you supposed to do? You’re single, ready to mingle, have a smart phone and, let’s be honest, you’re ready to get down to business. So you open up that app you downloaded last weekend after you had two too many. You know the one: Uber. But this time, instead of getting a foggy ride home, you can make a few bucks.
Uber claims drivers can make $19 per hour—but don’t quit your day job just yet. Your pay won’t have federal taxes withheld, so you’ll need to set aside some for the tax man. And if you make over $433, your earnings will be subject to self-employment taxes too. (But hey, even after taxes you’ll have more money than if you spent the night swiping right and buying long islands at the piano bar.)
There are a few ways you can report your Uber activity on your taxes, and a few ways to determine your vehicle deduction/expense. We’ll look at vehicle expensing first.
Vehicle Expense Option A
As an Uber driver you can deduct your insurance, wear and tear on your vehicle (depreciation—which is a whole other blog post in itself), fuel, oil changes, maintenance, etc. But you can only deduct these to the extent of your use for Uber. Let’s say in one year you spend $1,600 on gas, $1,100 on insurance, $150 for oil changes and figure $2,000 of depreciation, totaling $4,850. You drove 15,000 miles that year, and of that 5,000 were related to Uber. Your vehicle expense would be one-third of your total, or $1,617.
Vehicle Expense Option B
This option uses the standard mileage deduction. Track how many miles you drove for Uber and multiply by 57.5 cents (for 2015). Done. Simple and easy. Using the same numbers in the previous example, your vehicle expense would be $2,875. The standard mileage deduction won’t always be more, but in most cases you can elect whatever option is best for your situation.
No matter whether you opt for A or B, make sure you keep a written log of your miles.
Now you need to report your Uber-ing (is that a word?) on your taxes.
Reporting Option A – Other Income
You can report the money earned as Other Income, this is pretty easy, but it comes with a pretty big downside. Essentially you wouldn’t be deducting any of your vehicle expenses. Additional income with no additional deductions is not the best tax scenario.
Reporting Option B – Schedule C Business Income
The other option provides a little more work, but pays off in the end. You can treat your Uber activity as a business and report your earnings and expenses on Form Schedule C. Not only would you include your vehicle expenses from above, you could also include a portion of your cell phone bill. You can’t run an effective Uber business without a phone, can you? This option is better for a few reasons. Your vehicle expenses help offset any income you have earned and if you report a loss from your Uber activity, it can reduce your income from your day job.
Remember that bit about Self-Employment tax? This is another reason to report your Uber activity on Schedule C. You’ll only pay SE tax on the net profit of your business. If you choose to treat the Uber earnings as Other Income, the full amount will be subject to self-employment.
No matter how you track your vehicle expenses or how you report your income, there is one financial matter you’ll definitely need to understand before you start driving for Uber: how to get reimbursed when someone throws up in your car.