The gig economy has opened up new opportunities for Californians looking to earn extra income as rideshare drivers for companies like Lyft and Uber. However, navigating the tax implications of this side hustle can be overwhelming. This blog post will provide a step-by-step guide on how to file taxes as a Lyft or Uber driver in California, ensuring you stay compliant with state and federal tax laws.
Step 1: Understand Your Tax Status
As a Lyft or Uber driver, you are considered an independent contractor rather than an employee. This means you’re responsible for reporting your income and paying self-employment taxes, which include both Social Security and Medicare taxes.
Step 2: Track Your Income and Expenses
Throughout the year, keep detailed records of your rideshare income and expenses. This includes tracking all payments received from Lyft or Uber, as well as any cash tips from passengers. Additionally, maintain records of all expenses related to your rideshare business, such as vehicle maintenance, fuel, insurance, and cell phone usage. By keeping accurate records, you’ll simplify the tax filing process and ensure you claim all eligible deductions.
Step 3: Collect Your Tax Documents
At the end of the year, Lyft and Uber will provide you with a Form 1099-NEC (if you earned over $600) or 1099-K (if you processed over 200 transactions and earned over $20,000) detailing your income for the year. You’ll use this information to report your earnings on your tax return. Additionally, gather receipts and documentation for all your business-related expenses to support any deductions you claim.
Step 4: Complete Schedule C (Form 1040)
As an independent contractor, you’ll need to complete Schedule C (Form 1040) to report your rideshare income and expenses. This form allows you to calculate your net profit or loss from your Lyft or Uber business, which will be reported on your individual income tax return.
On Schedule C, you’ll report:
- Your gross income from Lyft and Uber (including tips)
- Your deductible expenses, such as vehicle expenses, insurance, and cell phone usage
- Your net profit or loss (gross income minus deductible expenses)
Step 5: Calculate Your Self-Employment Taxes
As a self-employed individual, you’re responsible for paying both the employer and employee portions of Social Security and Medicare taxes. To calculate these taxes, complete Schedule SE (Form 1040). The self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. However, you can deduct half of your self-employment taxes as an adjustment to income on your individual income tax return.
Step 6: Complete Your Individual Income Tax Return
Once you’ve calculated your net profit or loss from your rideshare business and determined your self-employment taxes, you’re ready to complete your individual income tax return (Form 1040). Be sure to include your Schedule C and Schedule SE information on your return, along with any other relevant income and deductions.
Step 7: Pay Your Estimated Taxes (If Applicable)
Independent contractors are often required to make estimated tax payments throughout the year to cover their income and self-employment tax liabilities. If you expect to owe more than $1,000 in taxes after subtracting your withholding and refundable credits, you may need to make estimated tax payments. Use Form 1040-ES to calculate and submit your estimated tax payments.
Stay Up-to-Date with the Law
Laws are changing fast when it comes to rideshare drivers. Be sure to stay informed of how Uber and Lyft are supposed to classify their drivers, as it has a direct impact on how you prepare your taxes. Hopefully, the advice in this article covers any questions you have about driving for Uber or Lyft in California. If you have any questions, consult with your local California tax professional or tax attorney. They should be well-versed in California taxes and can cover any concerns you may have.