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Lyft and Uber Taxes: Surprising Deductions for Drivers

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Working as a driver for Uber or Lyft can be a great way to earn money as part of the gig economy. Whether you want to drive for Uber or Lyft as your main gig or as a side hustle, you may have questions about your tax liabilities and possible tax deductions.

Uber and Lyft drivers are considered independent contractors rather than full-time employees. This means you must file income taxes quarterly, using Internal Revenue Service (IRS) form 1099. This means that tax payments are not withheld by your employer from each paycheck. Instead, you need to set money aside in a savings account each pay period in order to save up for your quarterly tax bill.

One of the big advantages of this scenario is that your employment status grants you valuable tax deductions that allow you to decrease your taxable income. Play your cards right as a rideshare driver, and you can subtract the deductions below from your income before determining you total tax liability.

Uber and Lyft drivers are independent contractors

The terms employee, independent contractor and freelancer tend to get tossed around rather loosely. Especially when discussing the gig economy, and Uber and Lyft. But for your taxes, they have very specific meanings. Lyft and Uber drivers are considered independent contractors (for now; California is trying to change that status). That means as a driver, you have to navigate how to do your taxes — and take advantage of deductions.

Employees and independent contractors may do similar or even the exact same work for a company. But when it comes to taxes, a business withholds income tax, Social Security and Medicare from the salary paid out to employees — but not for independent contractors. Employment and labor laws are applied differently to independent contractors than for employees. Independent contractors do their tasks without the same level of control there is over an employee.

Freelancer may be used interchangeably with independent contractor, or in some instances to mean something distinct. But as a rule, freelancers and independent contractors are self-employed, which means the same basic tax issues and regulations apply for both. This group has to think not only about saving a certain amount of their income for taxes, but also about what expenses can be deducted from that income for tax purposes.

Both Uber and Lyft provide online resources to help their drivers through the sometimes complicated process of figuring out taxes as an independent contractor. Lyft also has a promotional discount for drivers interested in using TurboTax.

“We partnered with TurboTax for the fifth year in a row to offer all Accelerate drivers [those who are part of Lyft’s driver rewards program] free access to TurboTax Self-Employed, and 50% off TurboTax Self-Employed Live,” said Eric Smith, a Lyft spokesperson Eric Smith.

Tax deductions for Uber and Lyft drivers

There are five major tax deductions that Lyft and Uber drivers should know about and take advantage of when doing their income taxes:

Tax deduction

Details

Expenses from operating your vehicleCosts including gas, repairs, insurance, lease payments, etc.
Standard mileage deduction58 cents per mile driven for business use
Provisions for customersBottled water, snacks and other expenses used toward riders
Tolls and parking feesCosts incurred for using roads and parking
PhoneAny phone charges for business reasons

Expenses from operating your vehicle

Any expense related to the running of your business can be considered deductible. If you’re a Lyft or Uber driver, the most obvious qualifying expenses are those relating to your vehicle. There are two options to go about deducting expenses for your car — but keep in mind, you may choose one or the other, but not both. The first option is to deduct what are known as the “actual costs” of operating your vehicle for business purposes. That can include money for gas, oil, repairs, insurance, maintenance, lease payments, depreciation of the model or other costs associated with upkeep.

Standard mileage deduction

The second option is to deduct expenses relating to the business operation of your vehicle via the standard mileage deduction. The 2019 standard mileage rate permitted by the IRS is 58 cents per mile driven for business use, an increase of 3.5 cents from the 2018 rate. You can use that rate to calculate how much of your spending on the vehicle can be deducted when doing your taxes.

Provisions for customers

Everyone loves to get into an Uber or Lyft with free bottles of water, mints and the like. If you stock beverages and snacks in your car for customers, those expenses may be deducted.

Tolls and parking fees

As long as you’re paying them in the course of operating your driving business, you can deduct tolls and parking fees.

Phone expenses

Your smartphone is crucial to being a Lyft or Uber driver, since it connects you to not only the app you’re working with but also to customers riding in your vehicle. You can calculate the portion of your phone bill that is dedicated to business use and deduct that amount — personal phone use does not qualify as a business expense. It may also make sense to have a separate phone and phone plan dedicated to your business use.

Take all the deductions you can

As an independent contractor, you need to embrace all the benefits of your status, especially when it comes to reducing your taxes. When you’re self-employed, the burden is on you to figure out what you need to have ready for tax time and what you can deduct from your taxable income.

Remember to keep thorough records for everything in case the IRS wants to check them in order for you to reap the full rewards of those deductions. And don’t be afraid to seek out help when needed from a tax professional.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Paul Schrodt
Paul Schrodt |

Paul Schrodt is a writer at MagnifyMoney. You can email Paul here

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Banking

What Is a Passbook Savings Account and Can You Still Open One?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

If you’ve never heard of a passbook savings account, you’re not alone. These banking products used to be run-of-the-mill, but today they’ve become relics that are no longer promoted much by banks.

Yet passbook savings accounts still exist, more often than not at regional banks. A passbook savings account is a type of savings account that allows you to earn a competitive interest rate and comes with a physical notebook, called a passbook, that helps you track the flow of funds into and out of the account.

It’s undoubtedly an old-school approach, and you might even find a passbook among other paper records in the belongings of, say, an older or a late relative. But whatever your age, you may be intrigued by its unique, analog attributes. Here’s what to know if you’re thinking about getting a passbook savings account.

How does a passbook savings account work?

Passbook savings accounts work the way a lot of banking used to function. Before computers, the internet, online bank statements and text message alerts, customers had to rely on paper-based records to keep up with their finances and their bank balances. When it came to savings accounts, your passbook was a key tool. Physical checkbooks played a similar role for your checking account.

In fact, traditional savings accounts were once known as passbook accounts. Bank tellers recorded deposits along with earned interest in these paper notebooks, which you would store at home for safekeeping. While the digitization of so much personal banking has pushed passbooks to the edge of obsolescence, they’re still an enjoyable way to save for some.

Passbooks haven’t changed much with time. Banks may require you to visit a branch in person in order to use them, given the books’ analogue nature. There’s also generally no ATM access available with this type of savings account, although you may be able to look at your balance online.

As with any other type of savings account, there may be a minimum opening balance requirement, which varies based on the bank. For instance, First Republic requires $500 to open a passbook account. Meanwhile the regional Union Bank in North Dakota only requires $100, unless you’re a minor, in which case there is no minimum.

Do passbook savings accounts offer good interest rates?

The annual percentage yield (APY) on your passbook savings varies based on the bank. But you shouldn’t expect a high yield especially compared with accounts like a certificate of deposit (CD). Still, it’s important to compare the APYs among different banks to maximize your yield.

Similarly, how often interest is compounded or how often a bank pays out the interest on a passbook account can make a difference to your returns. Interest could be compounded daily or sometimes monthly. The more regularly the compounding, the better off you are.

Fees may apply, but it’s possible that they will be lower than those for regular savings accounts. For example, Investors Bank has decreased fees and balance requirements on its passbooks, charging a $3 monthly fee that can be avoided entirely if you keep a $50 minimum balance.

In any case, the Federal Deposit Insurance Corporation (FDIC) insures deposits made into a passbook savings account so you can have peace of mind about your dollars.

Who should get a passbook savings account?

These days, passbooks make sense for a very select audience. Those who insist on a paper trail for all their financial record keeping ?— or simply love the retro quality of these kinds of booklets? — are obvious candidates for a passbook savings account.

However, the main audience for these savings accounts are parents with young kids. When they advertise passbook savings accounts at all, banks like to showcase them as a way for kids to learn how to start saving.

One such company is American National Bank, based in Virginia and North Carolina, which promotes passbooks as part of its youth savings program for those 12 and younger. If you have a young child and want to instill smart financial practices early on, the old-fashioned method is ideal. Plus, kids tend to appreciate the simpler pleasures of print records. A nice perk: American National Bank gives kids a prize when they’ve filled up their passbook.

Pros and cons of passbook savings accounts

Passbooks aren’t for everyone. Here are some advantages and disadvantages to consider before jumping into this type of account.

Pros:

  • These accounts are a great way for young children to learn the habit of savings early on in their lives.
  • You get a physical notebook — the passbook — that you can easily consult. For kids, this helps make the somewhat abstract nature of savings more comprehensible.
  • There’s no need to worry about the loss of an ATM card or the possibility of young savers draining the account to buy things without oversight.
  • Fees and minimum balance requirements may be lower than those for other types of savings.
  • They offer decent interest rates.

Cons:

  • You won’t get the same amount of digital access or convenience as with a regular savings account.
  • Passbooks often require in-person visits at a bank branch for transactions.
  • Not all banks still offer passbook savings as an option.

Some advice on how to build savings

Whether you’re exploring a passbook account or some other type of savings, one rule holds: The more you save, the better.

That can be hard for anyone, especially with so many temptations to spend. But a savings account into which you deposit money without looking at it much (as you might if it’s directly tied to your checking account) can help you avoid the pitfall of transferring funds for unnecessary expenses. Of course, a higher interest rate is also always desirable.

A passbook can help in this case since it’s digitally limited and geared more toward building savings over the long haul. But other options exist to help you figure out a sensible way to build a nest egg. It’s all about finding what works with your financial habits and lifestyle.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Paul Schrodt
Paul Schrodt |

Paul Schrodt is a writer at MagnifyMoney. You can email Paul here