A brief consult with an experienced accountant is advisable. You may be required to pay quarterly taxes, and the IRS can assess penalties if you fail to do so. Here is their 2016 estimator, if you think you can handle it yourself. But don’t just ignore it until the 1099 arrives.
I would withhold a little more than 25%. Remember your self-employment income needs to pay self-employment tax, too. I’d figure closer to 30% to be safe. I guess it depends a bit on how much work you plan to do and what other income you have. I plan for 35% myself, but I pay quarterly (and I have a different line of work, but self-employed.)
I’m not sure that I AM self-employed. That’s another question for an accountant. This is the first suggestion I’ve heard that there will be additional taxes besides just more taxable income.
If you are driving for Uber / Lyft, you are self-employed.
My brother’s wife’s father is an accountant/financial planner. He says his clients who drive for Uber / Lyft are either making peanuts, or losing money, once all the hidden costs are figured in.
That’s a real possibility, and I just made an appointment with a local accountant to start asking questions and getting answers. As I noted above, it might make more financial sense for me to eliminate 3/4ths or so of the driving – doing just enough to cover the car payments without driving my car to death. I know it’s a reasonable choice to consider, but I’ll need some more expertise than I have to figure out whether it’s the right choice for me.
There’s also a good possibility that Uber will add more and more drivers in my area (a fairly new market for them), and my share of riders over time will inevitably shrink. So my expectations of continuing the income I’m making now could be unreasonable.
Are both companies okay with you working for the competition? Or do you not mention it?
What car do you drive, Mazda 3?
Yes: do talk to an accountant. Home office is a common audit flag. Keep in mind that an audit does not meant that you are doing something wrong, but it is a PITA. That said, unless I’m missing something that doesn’t sound like a justifiable expense. IIRC you can keep many receipts for your car expenses OR take the mileage rate.
Lyft knows I drive for Uber because I started with Uber first. But for both, I’m considered an independent contractor and I can’t see what they would care about other work I might do. Certainly neither company expects their drivers to be working full time and for them only.
Yes, a Mazda3.
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Or see H&R Block’s page on it:
Emphasis mine. So, for your Uber income, you have federal income tax plus the 15.3 percent self-employment tax (this basically covers both sides of FICA; with a normal W-2 job, the employee pays half and the employer pays half, but since you work for yourself, you get to pay both.) And don’t forget state income tax, if it applies. And you should be paying taxes quarterly. It’s not impossible to do yourself and in my business, I didn’t bother with an accountant for the first four or five years, but it’ll be handy to have one around to best guide you. Otherwise, you need to go and read up on stuff. Being self-employed, you also now can put a quarter of your net profit into a SEP IRA for your retirement (or an Individual 401k) if you want and this will reduce your taxable income for the year, but it will also tie up that money in retirement (which, for me at least, is a good thing and I max out my SEP contribution every year along with my Roth.) Maybe I’m introducing too much complexity, but that was the one thing I missed reading up about when I was doing my own taxes which my accountant informed me of.
Another reason to incorporate or form an LLC is to separate yourself from your business. As it is now, if anyone were to sue you as a driver, all of your personal assets are vulnerable. My understanding is that an LLC or something like it separates the individual from the business. Forming one costs money though.
Actually, they can’t complain about the other. If they did, then you wouldn’t be an independent contractor. I believe they are under fire for treating all drivers as independent contractors instead of employees. The fact that you drive for both, bolsters their argument that you are NOT an employee.
$.30/mile is astronomically high for maintenance.
I have 80k miles on my scion. Your figure says I should have spent $24k on maintenance so far.
I have given it 16 oil changes @ ~$35 each and two sets of tires at ~$500 each. That comes to 1560 which is under .02/mile. Whenever that looming $22,440 repair comes up it’s kind of a no brainer to walk away from it.
Yeah–Triple A estimates it at $0.05 per mile. Add another penny for the tires.
You mentioned making payments on your car, and I only think of this because I just bought one myself, and saw an interesting clause.
Check your paperwork with whoever you are making payments to, and make sure that there aren’t any limits on what you use the car for - mine specifically prohibits using the car for taxi-type services, or more generally as any sort of business vehicle - to the point that they specify that they can take the car back if they find out I am doing so. I thought it was a little extreme, and I’m sure they really don’t actually care that much, but still, something to maybe check.
The figure I put together included maintenance, tires, and** depreciation**.
Even though, I must have messed it up somehow. Good point.
I’ll bet the correct figure isn’t as far off as you think though. A Scion with 80,000 miles on it will have depreciated to a third of it’s original purchase price. For a car that wasn’t purchased new for $19,000 like your economy car, that can be a significant chunk of change.
That’s the same link as I used in post #10 when we started talking about the cost of mileage.
I guess I didn’t click on it because I didn’t see how you came up with $0.30 for “maintenance” when that exact cite says a nickel. With depreciation, yes, you’ve got about thirty cents there.
Don’t tell him about estimated returns and filing quarterly. Or Self employment tax.
Been there done that in several posts in this thread.
Ok, I have an update. I’ve driven for 11 weeks, grossing just under 49 hundred dollars. Total expenses including gas, washes, an oil change and tire rotation are just over $600. Total “online” hours are 315.
This works out to an average gross pay of just over $15/hour for 28 hours a week.
I’m earning way more than I ever expected – more than $700 just last week. This week I’ve established a goal – $1,000. $100 dollars a night driving after the day job, and $250 each Saturday and Sunday. These are all pretty attainable, but I don’t think are sustainable. I really should be working 70 hours a week, which is what my day job and the driving are now adding up to. Still, fun to get there just to see if I can.
Also, I have an appointment with an accountant next week to get a better reality check on the real-world financial implications for me.
Thanks for the update Boyo. Let us know what your accountant’s take on it is. I live in a very fast-growing, touristy city and have been wondering what the Uber situation is like and if it would be worth it here.