On demand drivers-2021

FinnKevin
FinnKevinAccountant à CPA Clinics

On-demand drivers for ridesharing companies, such as Uber or Lyft, are not employees and are instead considered independent contractors for tax purposes. Being an independent contractor means you are self-employed.

On-Demand Drivers
On-Demand Drivers
On-demand drivers for ridesharing companies, such as
Uber or Lyft, are not employees and are instead consid-
ered independent contractors for tax purposes. Being an
independent contractor means you are self-employed.This
means that the company is not withholding any taxes from
your pay and you will be responsible for paying your own
federal income tax (and state income tax, if applicable), and
Social Security and Medicare (FICA) taxes (self-employ-
ment tax) on your net profit as well as 100% of any associat-
ed costs.
Tax Forms
Schedule C (Form 1040). You report all of your income
and expenses associated with your business on Schedule C
(Form 1040), Profit or Loss From Business, to determine your
net profit (or loss). If you have a net profit of $400 or more,
you must pay self-employment tax, which is computed on
Schedule SE, Self-EmploymentTax.
Form 1099-NEC. On-demand drivers may receive Form
1099-NEC if they have earned referrals, incentives, or bo-
nuses from a ridesharing company. If you earned less than
$600, the company may not issue you a Form 1099-NEC,
Nonemployee Compensation, instead, you must identify (log
into your account online, for example) the total amount you
earned as this income must be reported in your gross prof-
its along with your fares. The rideshare company should
still provide this total to you even if it does not provide an
actual tax form.
Form 1099-K. On-demand drivers who get their fares
through a ridesharing company will generally receive Form
1099‑K, Payment Card and Third Party Network Transactions,
which reports the amount of fares/fees received by the
rideshare company on your behalf. Amounts received are
broken down by month, and the form also shows the total
annual amount.
Car Expenses
You can deduct car expenses associated with your on-de-
mand driving business. You generally can use either the
standard mileage rate or your actual car expenses to com-
pute your deductible car expenses. If you qualify to use
both methods, you may want to compute your deduction
both ways to see which gives you a larger deduction. Re-
gardless of which method you use, you should note your
odometer reading at the beginning and end of the year and
all business-related mileage. Ridesharing companies gen-
erally only keep track of the mileage for your actual fares,
not the additional miles you may spend driving around
waiting to pick up fares and driving to and from fares.
Standard mileage rate. The business standard mileage
rate for 2021 is 56.0¢. If you use the standard mileage rate
for a year, you only need to keep track of your mileage, so
there is a lot less information to record. However, you can-
not deduct your actual car expenses such as depreciation,
lease payments, maintenance and repairs, gasoline (includ-
ing gasoline taxes), oil, insurance, or vehicle registration
fees in addition to claiming the standard mileage rate.
When using the standard mileage rate, you can also deduct
car loan interest, personal property taxes, and business-re-
lated parking fees and tolls.
Actual car expenses. It is a good idea to keep track of all
of your actual expenses for the year to compare to the stan-
dard mileage rate to determine which deduction is greater.
Some actual car expenses include:
TAX YEAR
2021
Save $
And Experience
The Difference
+1-516-464-7444
info@cpaclinics.com
www.cpaclinics.com
This brochure contains general information for taxpayers and
should not be relied upon as the only source of authority.
Taxpayers should seek professional tax advice for more information.
Copyright © 2021 Tax Materials, Inc.
All Rights Reserved
Contact Us
There are many events that occur during the year that can affect
your tax situation. Preparation of your tax return involves sum-
marizing transactions and events that occurred during the prior
year. In most situations, treatment is firmly established at the
time the transaction occurs. However, negative tax effects can
be avoided by proper planning. Please contact us in advance
if you have questions about the tax effects of a transaction or
event, including the following:
•	 Pension or IRA distributions.
•	 Significant change in income or
deductions.
•	 Job change.
•	Marriage.
•	 Attainment of age 59½ or 72.
•	 Sale or purchase of a business.
•	 Sale or purchase of a residence
or other real estate.
•	Retirement.
•	 Notice from IRS or other
revenue department.
•	 Divorce or separation.
•	Self-employment.
•	 Charitable contributions
of property in excess of
$5,000.
On-Demand
Drivers
•	Depreciation.
•	Licenses.
•	Gas.
•	Oil.
•	Car washes.
•	Lease payments.
•	Insurance.
•	Garage rent.
•	Parking.
•	Air fresheners.
•	Registration fees.
•	Repairs.
•	Tires.
•	Tolls.
•	Cleaning
supplies.
If you use your car for both business and personal purpos-
es, you must divide your expenses between business and
personal use. You can divide your expenses based on the
miles driven for each purpose.
In order to take actual expenses, you need to keep track of
all expenses related to your car and related receipts.
Other Business Deductions
In addition to car expenses, you may incur some other com-
mon operating expenses you can deduct to offset your in-
come.You can deduct an expense if it is both ordinary and
necessary. An ordinary expense is common and accepted in
your particular line of work. A necessary expense is helpful
and appropriate for work. An expense need not be required
to be considered necessary. Even though an expense may
be ordinary and necessary, the cost may not be deductible.
Office expenses. If you keep a log book of your work, the
amounts you spend for a notepad, pen, paper, etc. could be
a deductible business expense.
Legal and professional services. The amount you pay for
legal or professional help (including tax preparation) could
be a deductible business expense.
Refreshments. If you provide refreshments exclusive-
ly available to your riders, such as gum, snacks, or a cool-
er full of bottled water or soda, the amount you spend on
those items can be deducted as a meals expense. Business
meals are subject to a 50% limitation. Exception: For 2021,
business meals provided by a restaurant are fully deduct-
ible (100%).
Cell phone. As an on-demand driver, you generally receive
fares through an app on your cell phone. If you use your
cell phone for personal and business use, the cost of your
cell phone and service should be prorated. If you use a sec-
ond cell phone exclusively for your business, then 100% of
its cost and service may be deductible.
Service fees. Most ridesharing companies charge a ser-
vice fee for each fare. Service fees are generally taken out
of the total fare price and the driver receives the remainder
amount.You can deduct the amount of service fees you paid
during the year.
Interest on car loan. If you own your car (not leased) you
can deduct the part of your car loan interest that represents
your business use of the car.You cannot deduct the part of
the interest expense that represents your personal use of
the car.
Personal property taxes.You can deduct the business per-
centage of state and local personal property taxes paid for
your vehicle. The personal portion of personal property
taxes is deductible if you itemize.
Example: Holly is a part-time driver for Uber who uses the stan-
dard mileage rate. In 2021, her total fare trip mileage is 420 miles,
but she actually drives 545 total miles related to her business. She
pays $50 in tolls while driving. The business percentage of her
annual cell phone expense is $198. Holly provides refreshments
(bottled water, soda, snacks) to her riders for a total cost of $100.
She receives Form 1099‑K, which shows her total income (fares/
fees) as $2,112. She also receives $85 in referral bonuses from
Uber and pays Uber service fees totaling $375.
Income Expenses
•	 Fares: $ 2,112
•	Referral bonuses: $ 85
•	Mileage: $ 305 (545 × 56.0¢ per mile)
•	Cell phone: $ 198
•	Refreshments: $ 50 (50% of $100)
•	 Tolls: $ 50
•	Uber service fee: $ 375
Total income: $ 2,197 Total expenses: $ 978
Holly’s net profits are $1,219 ($2,197 – $978). Assuming she is
in the 10% federal tax bracket and 4% state tax bracket, her total
taxes for her part-time driving business are listed below.
Federal income tax........................................................................ $122
State income tax.............................................................................  $49
Self-employment tax.................................................................... $172
Total taxes......................................................................................... $343
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On demand drivers-2021

  • 1. On-Demand Drivers On-Demand Drivers On-demand drivers for ridesharing companies, such as Uber or Lyft, are not employees and are instead consid- ered independent contractors for tax purposes. Being an independent contractor means you are self-employed.This means that the company is not withholding any taxes from your pay and you will be responsible for paying your own federal income tax (and state income tax, if applicable), and Social Security and Medicare (FICA) taxes (self-employ- ment tax) on your net profit as well as 100% of any associat- ed costs. Tax Forms Schedule C (Form 1040). You report all of your income and expenses associated with your business on Schedule C (Form 1040), Profit or Loss From Business, to determine your net profit (or loss). If you have a net profit of $400 or more, you must pay self-employment tax, which is computed on Schedule SE, Self-EmploymentTax. Form 1099-NEC. On-demand drivers may receive Form 1099-NEC if they have earned referrals, incentives, or bo- nuses from a ridesharing company. If you earned less than $600, the company may not issue you a Form 1099-NEC, Nonemployee Compensation, instead, you must identify (log into your account online, for example) the total amount you earned as this income must be reported in your gross prof- its along with your fares. The rideshare company should still provide this total to you even if it does not provide an actual tax form. Form 1099-K. On-demand drivers who get their fares through a ridesharing company will generally receive Form 1099‑K, Payment Card and Third Party Network Transactions, which reports the amount of fares/fees received by the rideshare company on your behalf. Amounts received are broken down by month, and the form also shows the total annual amount. Car Expenses You can deduct car expenses associated with your on-de- mand driving business. You generally can use either the standard mileage rate or your actual car expenses to com- pute your deductible car expenses. If you qualify to use both methods, you may want to compute your deduction both ways to see which gives you a larger deduction. Re- gardless of which method you use, you should note your odometer reading at the beginning and end of the year and all business-related mileage. Ridesharing companies gen- erally only keep track of the mileage for your actual fares, not the additional miles you may spend driving around waiting to pick up fares and driving to and from fares. Standard mileage rate. The business standard mileage rate for 2021 is 56.0¢. If you use the standard mileage rate for a year, you only need to keep track of your mileage, so there is a lot less information to record. However, you can- not deduct your actual car expenses such as depreciation, lease payments, maintenance and repairs, gasoline (includ- ing gasoline taxes), oil, insurance, or vehicle registration fees in addition to claiming the standard mileage rate. When using the standard mileage rate, you can also deduct car loan interest, personal property taxes, and business-re- lated parking fees and tolls. Actual car expenses. It is a good idea to keep track of all of your actual expenses for the year to compare to the stan- dard mileage rate to determine which deduction is greater. Some actual car expenses include: TAX YEAR 2021 Save $ And Experience The Difference +1-516-464-7444 info@cpaclinics.com www.cpaclinics.com
  • 2. This brochure contains general information for taxpayers and should not be relied upon as the only source of authority. Taxpayers should seek professional tax advice for more information. Copyright © 2021 Tax Materials, Inc. All Rights Reserved Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves sum- marizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Significant change in income or deductions. • Job change. • Marriage. • Attainment of age 59½ or 72. • Sale or purchase of a business. • Sale or purchase of a residence or other real estate. • Retirement. • Notice from IRS or other revenue department. • Divorce or separation. • Self-employment. • Charitable contributions of property in excess of $5,000. On-Demand Drivers • Depreciation. • Licenses. • Gas. • Oil. • Car washes. • Lease payments. • Insurance. • Garage rent. • Parking. • Air fresheners. • Registration fees. • Repairs. • Tires. • Tolls. • Cleaning supplies. If you use your car for both business and personal purpos- es, you must divide your expenses between business and personal use. You can divide your expenses based on the miles driven for each purpose. In order to take actual expenses, you need to keep track of all expenses related to your car and related receipts. Other Business Deductions In addition to car expenses, you may incur some other com- mon operating expenses you can deduct to offset your in- come.You can deduct an expense if it is both ordinary and necessary. An ordinary expense is common and accepted in your particular line of work. A necessary expense is helpful and appropriate for work. An expense need not be required to be considered necessary. Even though an expense may be ordinary and necessary, the cost may not be deductible. Office expenses. If you keep a log book of your work, the amounts you spend for a notepad, pen, paper, etc. could be a deductible business expense. Legal and professional services. The amount you pay for legal or professional help (including tax preparation) could be a deductible business expense. Refreshments. If you provide refreshments exclusive- ly available to your riders, such as gum, snacks, or a cool- er full of bottled water or soda, the amount you spend on those items can be deducted as a meals expense. Business meals are subject to a 50% limitation. Exception: For 2021, business meals provided by a restaurant are fully deduct- ible (100%). Cell phone. As an on-demand driver, you generally receive fares through an app on your cell phone. If you use your cell phone for personal and business use, the cost of your cell phone and service should be prorated. If you use a sec- ond cell phone exclusively for your business, then 100% of its cost and service may be deductible. Service fees. Most ridesharing companies charge a ser- vice fee for each fare. Service fees are generally taken out of the total fare price and the driver receives the remainder amount.You can deduct the amount of service fees you paid during the year. Interest on car loan. If you own your car (not leased) you can deduct the part of your car loan interest that represents your business use of the car.You cannot deduct the part of the interest expense that represents your personal use of the car. Personal property taxes.You can deduct the business per- centage of state and local personal property taxes paid for your vehicle. The personal portion of personal property taxes is deductible if you itemize. Example: Holly is a part-time driver for Uber who uses the stan- dard mileage rate. In 2021, her total fare trip mileage is 420 miles, but she actually drives 545 total miles related to her business. She pays $50 in tolls while driving. The business percentage of her annual cell phone expense is $198. Holly provides refreshments (bottled water, soda, snacks) to her riders for a total cost of $100. She receives Form 1099‑K, which shows her total income (fares/ fees) as $2,112. She also receives $85 in referral bonuses from Uber and pays Uber service fees totaling $375. Income Expenses • Fares: $ 2,112 • Referral bonuses: $ 85 • Mileage: $ 305 (545 × 56.0¢ per mile) • Cell phone: $ 198 • Refreshments: $ 50 (50% of $100) • Tolls: $ 50 • Uber service fee: $ 375 Total income: $ 2,197 Total expenses: $ 978 Holly’s net profits are $1,219 ($2,197 – $978). Assuming she is in the 10% federal tax bracket and 4% state tax bracket, her total taxes for her part-time driving business are listed below. Federal income tax........................................................................ $122 State income tax.............................................................................  $49 Self-employment tax.................................................................... $172 Total taxes......................................................................................... $343 Powered by TCPDF (www.tcpdf.org)