For Small Business Week, IRS highlights key business tax topics

WASHINGTON — In recognition of National Small Business Week, April 29 to May 5, the Internal Revenue Service is highlighting several resources to help small business owners and self-employed individuals understand and meet their tax obligations. The new tax law changes enacted in December 2017 make it especially important for these groups to know about new provisions affecting them.

During this week, the IRS will highlight various products including:

• A series of news releases on various topics including the sharing economy, home office deduction, cybersecurity and the Work Opportunity Tax Credit.
• Tax tips about business provisions under the new tax reform law. Topics will include tax law changes to depreciation rules and the employer credit for family and medical leave and how it benefits employers. Tax tips are written in plain language and can be subscribed to using the IRS’s Tax Tips email-subscription program.
• Information for small businesses is also available through IRS social media channels including tax tips and other resources. Stay informed following the hashtag #IRSsmallbiz and help us spread these messages by sharing the @IRSnews, @IRSTaxPros and @IRSenEspanol tweets.

Other small business resources

The IRS encourages business owners to check out other webinars on the IRS video portal. The portal has presentations on a variety of small business topics. Business owners may also be interested in these sites:

• Small Business and Self-Employed Tax Center  — an online resource featuring links to a variety of useful tools, including Small Business Taxes: The Virtual Workshop, a downloadable tax calendar and common forms with instructions. The Center provides help on everything from how to get an Employer Identification Number online to information and tips about IRS audits.
• Self-Employed Individual Tax Center — a resource for sole proprietors and others who are in business for themselves. This site has many useful tips and references to tax rules a self-employed person may need to know.
• IRS YouTube Video Channel — watch videos for small businesses on the Small Business playlist.
• Online Learning and Educational Products  — a page with tools to help taxpayers learn about taxes on their own time and at their own pace. For example, the IRS Tax Calendar for Businesses and Self-Employed has important tax dates for businesses.
• E-News for Small Businesses —  a free electronic mail service that offers tax information for small business owners and self-employed individuals, including reminders, tips and special announcements.

More information

Major tax reform was approved by Congress in the Tax Cuts and Jobs Act (TCJA) on December 22, 2017. The IRS has been working to implement its provisions and give information and guidance to taxpayers, businesses and the tax community as it becomes available.

 

Small Business Week Webcasts for Employers and Self-Employed Individuals

The IRS is hosting daily webcasts during National Small Business Week through Friday May 5. The presentations are geared for small business owners and self-employed individuals to help them navigate common tax situations.

Each day’s topic is covered in two 30-minute sessions each day. The first begins at 11 am EST, with the second at 1 pm. Closed Captioning will be available only during session two.

Here are the topics for the rest of this week along with registration information:

May 1: Employee vs. Independent Contractor
Explains the difference between a common-law employee and an independent contractor, a situation frequently encountered by small businesses.
Register for Session 1
Register for Session 2

May 2: Pay Now? Pay Later? Can’t Pay?
This webcast will discuss IRS payment options.
Register for Session 1
Register for Session 2

May 3 – Small Business Resources
Learn how to find information quickly using the IRS Small Business and Self-Employed Tax Center.
Register for Session 1
Register for Session 2

May 4 – Paycheck Checkup
The Tax Cuts and Jobs Act of 2017 could affect how much tax someone should have their employer withhold from their paycheck. Speakers will discuss who should perform a Paycheck Checkup.
Register for Session 1
Register for Session 2

Continuing education credit is not offered for these webcasts. Those with questions can email them to: SBSE.SL.Web.Conference.Team@irs.gov

Share this tip on social media — #IRSTaxTip: Small Business Week Webcasts for Employers and Self-Employed Individuals. https://go.usa.gov/xQkfZ

Once you’ve incorporated your small business, what else needs to happen to keep your company running smoothly? Here’s a guide to what every small business owner must do to stay in compliance with government guidelines.

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Once you’ve chosen the business you want to start and have secured funding for your new venture, the next step is incorporating your business. But once you’ve selected your business entity, what comes next? What else does your company need to file in order to do business and stay in compliance? If you’re in need of a guide that tells you what to do next, here’s are some of the small business musts you need to focus on accomplishing.

1. Prepare bylaws or an operating agreement.

If you incorporated as an LLC, you’ll want to draft an operating agreement. While these documents are generally not required by most states, having a written operating agreement ensures that the LLC is conducted the way you want, prevents financial and management disputes, and helps protect your limited liability status.

Corporations have bylaws, which are the rules and regulations of your corporation. Some topics that bylaws must include are the functions of each corporate officer, how meetings are called and conducted and shareholder voting formalities.

2. Obtain an Employer Identification Number (EIN).

Filing for an Employer Identification Number (EIN), or federal tax ID, gives your business the ability to open up a business bank account, hire employees and establish a credit profile. If you don’t feel comfortable using your social security number on all of your official documents, you may use your EIN instead. This ID is much less sensitive to use and helps to safeguard against identity theft.

3. Register your trademark.

If your business has a unique name, logo, slogan or design, the best way to protect those assets is to file a trademark application. By registering the mark, you will be able to protect your identity and keep copycat businesses from plagiarizing it. Don’t forget to conduct a search before filing to make sure that your ideas are indeed unique and that there are no other pending applications similar to your own.

4. Figure out which business licenses you’ll need.

Your location, industry and entity type will ultimately determine which business licenses are required by your city or state.

5. File for a Doing Business As name (DBA).

Even though it sounds similar, a Doing Business As name is different from filing a trademark. The trademark protects the name of your business while a DBA is the official registration of your business name. By filing a DBA, you can open up a business bank account and accept payments under an alternate business name.

6. Stay on top of your annual maintenance.

If you incorporated as an LLC or corporation, you must file an annual report in order to stay in compliance. This report includes basic information including the name of the business, its address and its registered agent. Document any changes made in the corporation or LLC and update your operating agreement or bylaws to reflect any new partners, members or investors involved with the business.

7. If you plan to expand your business…

Planning to expand your business outside of its home state? Whether you plan to do this now or later down the line, file to qualify as a foreign entity in order to do business there.

 

Special Thanks to “Guidant Financial”for reaching out to share content

We can all agree that tax season can be stressful. Compiling all of your annual earnings, sending money to the IRS, and spending months wondering whether you filed everything correctly is enough to make your head spin.

Tax filings are even more stressful for Uber drivers.

As a rideshare driver, you’re employed as an independent contractor. Independent contractors are required to file additional forms and set aside money from your earnings, rather than having those earnings withheld from your employer.

Tax filings for Uber drivers require more paperwork than other employees. However, the extra time can be worth it when you factor in the exclusive tax deductions that rideshare employees are entitled to. Let’s take a look at how the Uber tax filing process works.

Disclaimer: Please keep in mind this information is provided for general informational purposes only to help you understand Lyft and Uber taxes. It is not intended to be tax advice for any specific individual as all individuals have different tax situations. Ridester advises obtaining tax advice from a Certified Financial Adviser or a Certified Public Accountant who can address your specific situation.

 

The Uber Tax Filing Process

1. Collect your 1099 Form
   • Rideshare drivers should receive a 1099 form from Uber by January 31st. Your 1099 will show how much money you made and all of the fees that Uber took out of that amount throughout the last year.
   • Your 1099 will also display how many miles you have driven in the past year as a rideshare employee. You can access your 1099 by logging into the Uber partner portal.
2. Prepare an Expense List
   • Compile all of your expenses to maximize the return you get during the tax filing process. Items on this list should include all of the money you spent on improving your rideshare business, such as providing customers with complimentary bottles of water, tire changes, and much more.
3. Fill out the Schedule C and Schedule SE Forms
   • Once you have put together your tax deduction list, fill out the Schedule C and Schedule SE forms with all of your expenses.
4. Calculate Your Total Profit
   • The next step is to use your Uber tax information to calculate your total profit for the past year. To achieve this, take the total amount you made, minus Uber fees and business expenses.
5. Fill out the Form 1040
   • From here, Uber driver taxes are a bit easier to handle. With the 1099 completed, the last two steps are filling out the regular Form 1040 and paying your applicable taxes online or via mail.

What Tax Documents Do I Need?

1099-K

Banks will often send out a 1099-K to those who have earned over $20,000 or have collected at least 200 payments via Paypal, credit, or debit card. The IRS started issuing the 1099-K in an attempt to improve tax compliance from independent contractors.

1099-MISC

The Form 1099 variant is an essentially a catch-all for contract workers. Citizens may receive a 1099-MISC if they earned royalties or if a business has paid them for services rendered.

For example, any physical cash Uber drivers receive from a passenger who writes off the amount as a tax expense. During such events, Uber drivers will typically receive a 1099-MISC from the business. If not, they are required to report the earnings on their own via this form.

Schedule C Form

As the sole proprietor of your rideshare business, one of your responsibilities is to mark all expenses and income you handle under the label ‘self-employed’. Combine the data that you used in the 1099-K and 1099-MISC. Then, use this data to fill out the Schedule C Form.

Schedule SE

Once you have completed Form Schedule C, the next step is to tackle the Schedule SE. Uber drivers use this form to calculate how much of their income is taxable.

This amount can be found by subtracting Uber fees and business expenses from your income. The remaining amount is your net profit. Plug that number into the Schedule SE form to find out how much self-employment tax is due.

Form 1040

The final document taxpayers need to fill out during the Uber tax filing process is the U.S. Individual Income Tax Return, or Form 1040. This document is used to assess all personal clarifications that determine how your income should be processed.

For example, a Form 1040 provides a way for taxpayers to identify spouses and dependents, which may qualify them for additional deductions.

Tax Deductions for Uber Drivers

All tax deductions must be deemed ordinary and necessary.

Common items that are used in the rideshare industry, such as a universal USB cord for riders to charge their phone, are considered ordinary expenses. Necessary expenses include items or services that are helpful and appropriate for conducting business.

Vehicle Business Expenses

Since rideshare employees use their vehicle to conduct business, all of the expenses required to maintain that four-wheel operation are tax deductible.

Drivers have a choice in how to deduct these expenses during the Uber tax filing process. Options include the Actual Expenses Method or the Standard Mileage rate.

Uber drivers that want to keep track of every penny they spend can file with the Actual Expenses Method. If you are filing in this manner, make sure to keep your receipts for the following items.

• Carwash
  ● Car Depreciation
  ● Lease Payments
  ● Car Loan Interest Rate
  ● Registration Fees
  ● Licenses
  ● Gas
  ● Rideshare Insurance
  ● Vehicle Repairs
  ● Oil Changes
  ● Garage Rent
  ● Tires
  ● Tolls
  ● Parking Fees
  ● Roadside Assistance

There are several cons to filing with the Actual Expenses Method, such as the time and effort required to file in this manner. Filing your actual expenses may result in the oversight of certain expenses, and often ends up with rideshare drivers deducting less than they are entitled to.

To avoid such a dilemma, rideshare employees may decide to file the with Standard Deduction instead.

With Standard Deduction, rideshare employees multiply the number of miles listed on their 1099 by the Standard Mileage Deduction rate. This rate is an estimate of the expenses that drivers spend in a year.

Since these expenses change from year to year, the Standard Mileage rate fluctuates frequently. As of 2017, the rate is 53.5 cents per mile.

Phone Expenses

Without a smartphone, conducting business as a rideshare employee would be nearly impossible. As a result, most of the expenses an Uber driver spends to maintain the handheld device are tax deductible.

For example, if you bought a cell phone to start your rideshare business this year, you can deduct the price of the device when you file.GET STARTED TODAY

Other expenses include your monthly phone bill and any accessories purchased that are business related. However, using the same phone for work and personal use can make the filing process more complex.

It may be easier to purchase a separate phone for rideshare purposes. If not, you will be required to log data and cellular usage that was specifically used while working to get an accurate deduction rate.

Additional Uber Tax Deductions

There are plenty of additional expenses that are tax deductible that we have not covered yet.

For example, the fees that Uber takes out of your income is tax deductible. Another fee to take note of is any bank fees that are related to the rideshare business. These fees are often overlooked. However, each can be deducted during the tax filing process.

Related: Come see how Trump’s tax plan could impact your taxes as a driver.

Drivers that have started using complimentary items, such as bottled water and snacks, can deduct the expense from their taxes as well. To take advantage of this, be sure to keep itemized receipts or store the data in a spreadsheet.

If you have improved the safety and security of your rideshare service by installing a dashboard camera, keep the receipt! This item is tax deductible too.

Drivers that prefer to file their taxes using the Actual Expense Method may opt to hire an accountant. If you decide to pursue this form of bookkeeping, all of the accounting costs you pay out are tax deductible.

Common Mistakes to Avoid in Taxation

Uber Fees

Driver’s gross income does not include the Uber fees that are instantly removed. Due to this, it is very common for rideshare employees to calculate expenses without taking the Uber fees into account.

Be sure to only work with the income figure that is generated after you have subtracted Uber’s cut. Furthermore, do not shortchange yourself. All Uber fees that you subtracted from your gross income are tax deductible.

Vehicle Expenses

Many rideshare drivers make the mistake of trying to deduct their vehicle expenses twice. You can avoid this by choosing either the Standard Mileage Deduction or Actual Expense Method before filing.

Drivers that prefer to use the Actual Expense Method should start keeping track of their receipts at the beginning of each year. Doing so will maximize the total amount of deductions you qualify for during the Uber tax filing process.

Not Saving Enough

Spending money without paying taxes on it first can leave you owing the IRS a hefty amount come tax season. To avoid this financial nightmare, set aside a portion of your paycheck each week. Save up this money and do not spend it.

The self-employment tax rate is about 15.3%. Additional tax rates added to this, such as local, state, and federal, will vary. To compensate for this, we encourage drivers to set aside 30% of their income for the sole purpose of paying taxes.

Worried you didn’t save enough? Come explore this Uber driving advice to maximize your earnings before tax reason.

Business vs. Personal

As mentioned previously, deducting expenses that border between business and personal use can be tricky. The IRS will audit you if they suspect that you are trying to deduct personal items instead of business expenses. To avoid this, make sure you avoid filing personal cell phone data usage and mileage recorded for non-business purposes.

Recommend Tax Software for Drivers

There are many tax filing services online. Each system offers various features and prices that correlate with the service. Although there are a few free ways to file your taxes digitally, only a couple of these options include all of the forms that independent contractors need to fill-out.

TurboTax

TurboTax uses simple language to guide you through the tax filing process.

The software double checks possible deductions you might have missed and directs you to where to find it. Pricing for the Self-Employed Version is rather expensive, however, with a federal charge of $114.99 and a $39.99 fee for state.

H&R Block

Supporting the most tax form coverage and schedules with very few exceptions, H&R Block is another great option for filing taxes. For starters, they offer several options on how to go about the tax filing process as an Uber driver.

This can be very useful for those who prefer personal, non-automated assistance. Plus, H&R Block costs significantly less for those filing as self-employed. Federal is $74.95 and state is an additional $19.95.

TaxAct

Our last recommendation is TaxAct. Until a few years ago, TaxAct was a free tax filing service that included e-filing service.

TaxAct provides clear, straightforward filing experience at a noteworthy price. Filing your federal tax return as an independent contractor will cost $37. The price for filing your state taxes is $25.

What if I Don’t File Taxes?

Filing taxes is an important task that everyone is required to participate in. Citizens that do not file their taxes are subject to severe fines.

Initially, an interest rate and late fee are tacked onto the amount owed. These fees are compounded daily and can inflate the final amount owed to staggering numbers within two months.

If these penalties are ignored for any longer, the government can enforce devastating effects.

The process begins with the IRS issuing a Federal Tax Lien. When a citizen receives this warning, the IRS is essentially claiming all of your property, such as a car, boat, or house, as theirs. Further measures will be taken if this red flag is simply tossed aside.

In an effort to settle the amount of taxes you owe, the IRS can seize all of your property. Citizens that do not possess enough property to pay off the amount owed will start to notice a steep cut in their paycheck. If this process of paying off a tax debt is evaded, you can be charged with tax evasion and sent to jail.

Additional Tax Resources for Uber Drivers

Hopefully, we have covered all of the questions you may have about the Uber tax filing process. To further assist you with the Uber tax filing process, we have gathered a few useful resources for you to check out.

Uber Partner Tax Reporting Guide

This informative guide was created by H&R Block.

The PDF goes into further detail about how rideshare drivers working for Uber are considered an Uber partner. Other informative data that you may find interesting is also included, sales tax information and rare occurrences when income does not have to be filed.

Self-Employment Tax Calculator

Figuring out exactly how much money you need to set aside for taxes is a bit tricky. We have found that this Uber tax calculator can help with a lot of the guesswork.

CalcXML takes three inputs, your total income, how much of that was either taxed or deducted by Uber, and your filing status. From there, CalcXML generates the approximate amount of taxes you need to pay.

They break down how your self-employment taxes are distributed between Social Security and Medicare, as well as explain how much of that is actually tax deductible.

Guide to Taxation for the Sharing Economy

The IRS has issued their own guide for filing Uber taxes. Throughout the document, in-depth details on what needs to be included on your tax return are discussed at length.

Plenty of relatable examples are given to assist the reader with clarifying what a certain form is asking for. The guide even discloses how rideshare companies go about filing their tax returns, so be sure to check it out if you are curious.

When you started driving for Uber filing taxes was probably the last thing on your mind. Hopefully, taxation hasn’t hurt your enthusiasm.

As an Uber partner, there are many things to consider while running your rideshare business, including your taxes. With the new year steadily creeping towards us, it’s time to start preparing for the upcoming tax season.

 

Special Thanks to Pat @ ridester for reaching out to share content