With tax time approaching, if you drive for Uber, Lyft or a competitor, here is some tax information related to reporting your income.
You are considered self-employed and will report your income and deductible expenses on IRS Schedule C to arrive at your taxable income for income tax and self-employment tax.
IRS Forms: Your driving income will be reported on IRS information Form 1099-K, which reflects the entire amount for your fares charged on credit cards through the Uber reporting system. So if the 1099-K includes the total charges, then it also includes the Uber fee and credit card fees, both of which are deductible by you on your Schedule C. To determine the amount of those fees, you must first add up all the direct deposits made by Uber to your bank account. Then subtract the total deposits from the amount on the 1099-K; the result will be the total of the Uber fees and credit card processing fees. If you drive for multiple services, you will have multiple 1099-Ks and deposits from multiple services. It is highly recommended that you keep copies of your bank statements for the year so you can verify deposits in case of an IRS audit.
You will also need to include in your income any cash tips you received that were not charged through Uber. You should keep a notebook in your vehicle where you can record your cash tips. Having a contemporaneously maintained tip logbook is important in case of an audit.
Deductions: Your largest deduction on your Schedule C will be your vehicle expenses. The first step in determining the deduction for the business use of a vehicle is to determine the total miles the vehicle was driven, and then, of the total miles, the number of deductible business miles and non-deductible personal miles. Recording the vehicle’s odometer reading at the beginning of the year and again at year-end will give you the information needed to figure total miles driven during the year. Although the Uber reporting system provides you with the total fare miles, it does not include miles between fares, which are also deductible. Thus it is important that you maintain a daily log of the miles driven from the beginning of your driving shift to the end of the shift. The total of the shift miles driven will be your business miles for the year. If you know the business miles driven and total miles driven, you can determine the percentage of vehicle use for business, which is used to determine what portion of the vehicle expenses are deductible.
You may use the actual expense method or an optional mileage method to determine your deduction for the use of the vehicle. If you choose the actual expense method in the first year you use the vehicle for business, you cannot switch to the optional mileage method in a later year. On the other hand, if you choose the optional mileage rate in the first year, you are allowed to switch between methods in future years, but your write-off for vehicle depreciation is limited to the straight line method rather than an accelerated method. For 2017, the optional mileage rate is 53.5 cents per mile. The IRS generally only adjusts the rate annually. If using the optional mileage rate, you need not track the actual vehicle expenses (but you still need to track the mileage).
The actual expense method includes deducting the business cost of gas, oil, lubrication, maintenance and repairs, vehicle registration fees, insurance, interest on the loan used to purchase the vehicle, state and local property taxes, and depreciation (or lease payments if the vehicle is leased). The business cost is the total of all these items multiplied by the business use percentage. Since the vehicle is being used to transport persons for hire, it is not subject to rules that generally limit depreciation of business autos, allowing for substantial vehicle write-off in the first year where appropriate. However, if you converted a vehicle that was previously used only personally, the depreciation will be based upon the lower of cost or current fair market value, and no bonus depreciation will be allowed unless the conversion year was the same year as the purchase year.
Additional Deduction: Other deductions would include cell phone service, liability insurance and perks for your fares, such as bottled water and snacks. Depending on your circumstances, you may qualify for a business use of the home (home office) deduction. However, to qualify, the home office must be used exclusively in a taxpayer’s trade or business on a regular, continuing basis. A taxpayer must be able to provide sufficient evidence to show that the use is regular. Exclusive use means there can be no personal use (other than de minimis) at any time during the tax year. The office must also be the driver’s principal place of business.
Uber provides its drivers with detailed accounting information, and the only significant additional record keeping required is the miles traveled between fares, which is accomplished while in the vehicle. So justifying a home office is problematic. Even a portion of the garage where the vehicle is parked could qualify, but the use must be exclusive, which means the vehicle must be used 100% for business.
As a self-employed individual, you also have the ability to contribute to a deductible self-employed retirement plan or an IRA. Also, being self-employed gives you the option to deduct your health insurance without itemizing your deductions. However, these tax benefits may be limited or not allowed if you are also employed and participate in your employer’s retirement plan or if your employer pays for 50% or more of your health insurance coverage.
If you have additional questions about reporting your income and expenses, or the vehicle deduction options, please give this office a call.
From the desk of,
Your neighborhood friendly Accountant providing tax and accounting services in plain English
If you’re a new business owner, you might not remember the last night you slept more than four or five hours. Your days may be filled with developing marketing strategies, screening potential employees and trying to figure out how to set up a bookkeeping system. If working with numbers isn’t your favorite pastime, the latter action may be posing quite a challenge. If you can relate to this common scenario We can help.
Below is a beginner’s guide to bookkeeping.
Cash Versus Accrual Basis of Accounting
A pivotal first step when setting up a bookkeeping system is deciding whether to use the cash or accrual basis of accounting. Cash accounting requires you to record transactions at the time cash changes hands. Both actual money and electronic funds transfers constitute cash. If you’re a sole proprietor working from home or at a one-person office, opting for cash accounting can make sense. However, if you’re going to extend credit to your customers or request credit from your suppliers, you must utilize accrual accounting. Accrual accounting dictates that you record sales or purchases immediately, even if you receive cash from a customer or pay cash to a creditor at a later date.
Single- Versus Double-Entry Accounting System
Single-entry bookkeeping is similar to maintaining a check register. You record transactions when you make deposits into your business account or pay bills. This method only works if you own a small company with a low volume of transactions. If you own a mid-size or large business that is complex, a double-entry bookkeeping system is needed. With this type of system, at least two entries are made for every transaction. One account is debited, while another one is credited. A simultaneous debit and credit system is the key to a double-entry bookkeeping system.
Balance Sheet Basics
Before you can successfully develop a bookkeeping system, you must understand the basic balance sheet accounts: assets, liabilities and equity. If you don’t carefully track these items and ensure the transactions that deal with them are recorded in the right place, your books won’t balance. The accounting equation is a simple formula you can use to ensure your books always balance. This handy equation is: assets = liabilities + equity.
Assets are things your business owns, such as accounts receivables and inventory. On the balance sheet, assets are typically listed in order of their liquidity. For instance, the assets section of a balance sheet might begin with cash followed by marketable securities, inventory and accounts receivables. These accounts are referred to as current assets. Fixed assets, or tangible assets, round out the first portion of the balance sheet. They include things you can touch such as land, buildings and equipment.
Liabilities are things a company owes to third parties such as suppliers and banks. The liabilities section of the balance sheet comprises both current and long-term accounts. Current liabilities, those expected to be paid within a year, typically include accounts payable and accruals. Accounts payable contains amounts owed to suppliers. This account may also encompass credit card and bank debt. Accruals consist of taxes owed, including:
- Sales taxes
- Social security taxes
- Medicare taxes
Long-term liabilities, such as bonds and mortgages, aren’t expected to be paid off during the next year.
Equity represents the ownership a business owner and other investors have in a company. If you’re the only person who has put money into your business, the equity section of the balance sheet will only have one account in it.
Income Statement Basics
In addition to being familiar with balance sheet accounts, understanding income statement basics is critical to setting up a superb bookkeeping system. The income statement consists of revenue and expense accounts.
Revenue represents all the income received when selling goods or services. On the income statement, revenues are classified as either “operating” or “non-operating.” Operating revenues stem from your business’s main operations. Sales is an example of this type of revenue. Non-operating revenues are earned from some other activity such as rent or interest revenue.
Expenses are the costs incurred to run your business. On the income statement, expenses are classified as either cost of goods sold, operating or non-operating. Cost of goods sold represents the cash a company spends to manufacture or buy the products or services it sells to customers. Operating expenses are the costs a company incurs as part of its regular business activities excluding cost of goods sold.
Examples of operating expenses include:
- Supplies expense
- Wages expense
- Rent expense
- Utilities expense
Non-operating expenses are incurred for reasons outside the scope of normal business activities such as interest expense.
Benefits of Working With a Bookkeeping Professional
Besides familiarizing yourself with the aforementioned beginner’s guide to bookkeeping, working with a professional accounting expert is a smart idea. Numerous details go into managing your enterprise’s bookkeeping. Even a trivial mistake such as putting a decimal point in the wrong place can wreak havoc on your books. In addition to assisting you in setting up and managing a bookkeeping system, an accounting professional can help you raise financing, develop a pricing structure for your goods or services, and discover ways to save money on operations. Establishing a relationship with a reputable bookkeeper may both decrease your stress levels and increase your odds of long-term business success.
Additional Resources: ABCs of Small Bussines Accounting
Jéneen R. Perkins is a freelance accountant and consultant serving entrepreneurs, families and small businesses. She prides herself in being fluent in English instead of “Accountant-ese”.
How do you get paid when you start a one-person, unincorporated business? It seems pretty simple, right? You sell or do something and get paid. That’s how self-employment works, right? Read this Business Know-How article for more information> Read More
I write this message on the eve of the 6-year anniversary of Éclat Enterprises LLC. Éclat Enterprises, LLC was created based on one dream: to help people understand money better. Granted, I could have fulfilled this dream working for someone else. I’ve always helped people with their accounting and taxes needs since 2004. Sometimes I was paid, and sometimes I volunteered my talents. In either case, I loved doing the work! I know it may sound crazy, but I really do love numbers. I also enjoy helping people and teaching people about numbers!
In January 2011, I made a promise to myself, “If I can make $500 doing accounting and tax work on the side, I will start a business doing that. By the end of May, I had exceeded that goal by $50.Naturally, it was time to step out on my dream and start the business. I already had about 20 or so clients. One would think this was a good start. So why not start then, right?
I talked myself out of starting right then and there because I was facing many obstacles in my personal and professional career. felt as though many of the things I wanted to accomplish wouldn’t come across my path in the next 10 years. I had just finished failing the audit section of the CPA exam and had the most devastating breakup of my 20’s the year before.
Then the day came. Call it intuition, or the push I needed. But finally, I became fed up with corporate ladders, the unpredictable job market, and “the powers that be”. From that day forward, I decided to trust in myself and pursue my dreams until all options failed.
On 07/26/2011, As a graduate student with a full-time job, a part-time job, and my first apartment I literally took count of what was in my wallet and there wasn’t enough to pay the $150 business filing fees with the state of Wisconsin. I was ecstatic to find that I had enough available funds on a nearly-maxed out credit card to pay the $150 to the Wisconsin Department of Financial Institutions.
Then I created a website using weebly.com to launch my first (and very horrible) website for free.
Once that was complete, I started taking on tax clients. I would meet the clients where they were whether it was their homes or place of business.
Today, I have a wonderful group of team members, an inviting office for clients, and a new website (https://consulteclat.com).
So there you have it, my friends! The origin of Éclat Enterprises LLC was never written or calculated in a business plan. It started with virtually nothing and a dream.
I write this message to inspire those who may read it or share it. I inspire all to keep fighting for your dreams and to get rid of everything to live out your wildest dreams. Living a life with purpose doesn’t include the “should’ve, could’ve, would’ve” mentality. Dreams cannot be fulfilled thinking like this. Life is full of opportunities, you must decide which ones you are going to take or leave behind. And in some cases, if the opportunity doesn’t exist be strong enough to make it.
To my fellow entrepreneurs, I commend you! Regardless of the stage of growth of your business, keep pushing forward. It will be hard. People in your life will not understand you. You will get tempting job offers and buyout offers. Some will even consider you to be unemployed. Don’t stop dreaming because others cannot see the world and your life through your eyes.
I am still dreaming of what I want my business to become. I am still pushing to get there. And I will continue to do so until I can’t push anymore. I am excited to celebrate 6 years of living out my dream.
HAPPY 6TH ANNIVERSARY TO ÉCLAT ENTERPRISES, LLC!
Jéneen R. Perkins is a freelance accountant and is fluent in plain English, not “Accountant-ese”.
I was inspired to create the tips below after teaching a couple of workshops for the Southeast Wisconsin Chapter of SCORE. The factoids below are based FAQs I encountered throughout out my professional career as an accountant, entrepreneur, and mentor. I comprised the list as if I was answering questions in less than 60 seconds.
Accounting is a social math that explains what transactions a business has done in a certain period of time. It only requires help from My Dear Aunt Sally (Multiplication, Division, Addition, and Subtraction).
Break-even analysis of your business is necessary in order to be successful.
Cash Flow is completely different from profit and should be monitored daily.
Depreciation is an expense that saves cash by allocating the costs of assets purchased each year.
Expenses should be recorded in the same period as the revenue it earned.
Federal tax payments should be made quarterly.
Get every business deal in writing. Contracts help you and the client in the long run.
Hire wisely. The average cost of hiring the wrong person is $25k to $50k.
Interest paid on credit cards used for the business is deductible.
Just dedicating two hours a week to updating your books could save you 2 days during tax season.
Keep receipts for The IRS, which requires that purchases over $50 have a receipt.
Learn, leverage, launch is the business start-up model everyone should use. Learn about your business, leverage your network connections, and then launch the business.
Mileage is deductible to and from clients, job sites, networking event, etc. Not to the grocery store.
Never use your personal checking account for business transactions!
Operating Margin is determines how much money your business makes on each sales dollar.
Planning is essential to make profit. Identifying key performance indicators needed to monitor profitability is a great first step.
QuickBooks is not for everyone. Research all software options before purchasing.
Retained Earnings reflects that amount the business earned and can be reinvested in the business.
Statements of financial position are required for funding! Credit scores just don’t tell the whole story.
Team of professionals your business will need: accountant, business banker, insurance agent, lawyer, and mentor.
Understand the Industry you are in. If you know of the industry works, you will know how you will make money and how much you will spend.
Verify contract terms with the bills you receive. All too often business owners pay based on good faith.
Wives are not the best accountants. A lot of husbands tell me that their wives help spend money, not save it.
Xerox or digitally scan everything! I am frequently meeting clients who have mounds of paper and I have to wait for them to sort through it all.
Year-end should not be the only time you speak to your accountant.
Zero overdrafts on the business checking account. Overdraft fees are an expensive form of financing.
Jéneen R. Perkins is a freelance accountant and consultant serving entrepreneurs, families and small businesses. She prides herself in being fluent in English instead of “Accountant-ese”.