On-demand ridesharing services like Uber and Lyft have become increasingly popular in recent years. According to eMarkterer, approximately 28 million adults in the U.S. used a ridesharing service in 2016.
But if you're thinking of driving for one of these ridesharing services, you'll need to keep your books in order. Here are a few tips to make bookkeeping easier.
#1) Track Mileage
By keeping track of how many miles you drive, you can deduct it the associated expenses from your taxes. The Internal Revenue Service (IRS) offers two mileage deduction options: the IRS mileage rate ($0.54 cents per mile in 2016), or a breakdown of the actual expenses of driving (gas, maintenance, tag, insurance, etc.) multiplied by the percentage of which you drive the vehicle for business purposes. If you spent $3,000 on driving and drive the vehicle 50% of the time for ridesharing and 50% for personal, you would multiply $3,000 x 50%; thus, giving you a $1,500 deduction for mileage.
#2) Pay with Plastic
As with most freelance work, you should pay for ridesharing-expenses using a credit card or debit card. While there's no rule requiring ridesharing drivers to do so, it makes it easier to track business-related expenses. You can always lose a cash receipt, but credit card and debit card transactions are stored by the respective financial institute.
#3) Estimate Annual Income
You should also prepare and make quarterly tax payments to the IRS (federal and state) based on the amount of income you expect to make for the year. No one can predict exactly how much they'll earn -- and that's okay. Look back at your recent ridesharing income and expenses, and using this information, estimate your income. You'll need to pay taxes on this projected income in four equal installments.
Check out the IRS website to learn more about quarterly payments.
#4) Obtain a 1099-MISC
Whether you drive for Uber, Lyft or any other on-demand ridesharing service, you should receive a 1099-MISC income form around the beginning of the year if you earned over $599 in the previous year. If you don't have this form, contact the ridesharing company for whom you worked to request it.