By James J. Newhard, CPA, CGMA

Pretty much everyone is looking for more – money, income, and even fun. One of the newer ideas that has been spreading, and providing some “more” for people, is to drive people to their destinations through services such as Uber or Lyft. This can be a great option (if you have a car), but if you choose this route, be aware of the tax considerations.

If you choose to start driving, Uber and Lyft will issue to drivers 1099-MISC forms for nonemployee compensation (as opposed to a W-2), and drivers will be deemed self-employed by the IRS and other taxing authorities. That means net income will be subject to federal self-employment taxes for Social Security and Medicare, as well as regular income taxes. For this, a schedule C will be required when filing your taxes.

The challenge here is that drivers – part-time or not – need to understand that they are subject to all the tax and estimated tax requirements of any self-employment business. Furthermore, Uber or Lyft drivers must be properly registered for any applicable local/city taxes, such as those in Philadelphia or Pittsburgh, and they may need to expand insurance coverage – both for their vehicle and for other contingent litigation liability coverages (weird things do happen).

On the flip side of new costs, drivers should also be aware of the additional deductions for which they may be eligible. “Business use of auto,” for one, can include the business-proportionate expenses of operating the car for business purposes, including gas, oil changes, inspections and repairs, registrations, insurance, tolls and parking, car washes or detailing, a AAA membership, and depreciation and related car loan interest/lease payments. Also, don’t forget cell phone and connectivity expenses, as well as those for extra devices to assist riders, such as mp3s for music, directional map devices, or dash-cam video devices. Include the costs of any applications or software used to support the driving business. For example, MileIQ (or other iPhone or Android apps) might make it easier to document relevant activities. If you, as a driver, provide riders with snacks, refreshments, or even candy or gum, make sure these claimable business expenses are accounted for.

And while many drive for Uber and Lyft to earn a little extra spending money, the generated net income is eligible for deductible retirement contributions and perhaps some additional health benefit plans.

By making the decision to supplement your income you may have unwittingly become an entrepreneur. Know all the benefits and challenges entrepreneurship brings and understand the tax consequences of your decision so you can take steps to minimize your tax obligations.

James J. Newhard, CPA, CGMA is the owner of James J. Newhard, CPA, and services small businesses/entrepreneurs, individuals, nonprofit organizations, and estates/trusts. He is a past-president of the PICPA Greater Philadelphia Chapter, is a recipient of the Volunteer Service Award and the Champion Service Award, and serves on several PICPA committees at the state level. Newhard is also a member of the AICPA.