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How to Breeze Through Your Lyft 1099 Taxes
6
Min Read
As a 1099 Lyft driver, you should file quarterly or year-round as applicable and make sure that these tax filings account for all of your driving. If this is your first year filing, this quick guide will walk you through everything you need to know.
Technically, you are paid as a self-employed business owner or 1099 independent contractor so Lyft doesn’t withhold taxes from your income. It's the reason why you don't receive a W-2 form. So, it is up to you to file your taxes. Of course, you should try to minimize your tax liability on your self-employment income when tax season rolls around. Later in this article, we'll show you exactly how to do that. But first, let's go over the basics of tax preparation for Lyft drivers.
Note: If you want to get a hold of your Lyft taxes and save a ton of money at the end of the year, try Bonsai Tax. Our software can help you automatically organize and track your tax deductions and send you filing reminders. Users typically save $5,600 from their tax bill by using our app. Try a 14 day free trial today.
The Types Of Tax Forms Lyft Drivers May Receive
Depending on how much money you made during the year, Lyft will send you one of two different tax forms: Form 1099-K or Form 1099-NEC. The one you get is going to be based on both your earnings from the previous year. You'll need to know the differences between each form before you prepare your taxes.
1099-K Rules
The IRS requirements to receive this form are if you generated more than 200 transactions and more than $20,000 in gross ride receipts from self-employed driving in the last year.
If you live in Virginia or Vermont, Massachusetts, you'll receive this form regardless. For drivers in Illinois, you’ll get a 1099-K as long as you earned at least $1,000 in ride payments.
The tax form, 1099-K, doesn’t list your Lyft’s platform fees, Express Pay or Drive Rental fees, third-party fees, and tolls but you'll be able to locate this tax information in your Account's Annual Summary in your Driver Dashboard.
1099-NEC Requirements
In order to get this form, Lyft drivers would have earned at least $600. Lyft is not required to issue a 1099 for less than $600 of payouts to a contractor. Earnings include payments for driving, new city bonuses, mentoring, and referral bonuses.
In prior years, drivers usually would receive a 1099-MISC instead of a 1099-NEC. But in 2020, the IRS made the switch from a 1099-MISC to a 1099-NEC for non-employee compensation.
If you’ve had over that amount of Lyft income from driving this year and didn’t receive a 1099 Form before April 16th, contact Lyft immediately. Just because you didn't get your tax documents, does not mean you don't have to file taxes on your self-employment income.
The Annual Summary For Lyft Taxes
Your Annual Summary will show everything from your earnings (payments, non-ride earnings), expenses, total rides, and total online miles.
The annual summary will track all your necessary tax information so you won't have to keep receipts.
A Note On B Notices
If there's a problem with the name or Taxpayer Identification Number (TIN) you gave to a previous year, the IRS will send you a Backup Withholding Notice (B notice). All you need to do is follow the instructions on the B Notice to correct the incorrect information.
If Lyft does not receive the requested info within 15 days of sending the notice to you, you'll get 24% of your earnings withheld.
Your Tax Duty As A Self Employed Driver
There are two kinds of taxes you'll need to keep in mind as a Uber 1099 or Lyft rideshare driver: income taxes and self-employment tax. Lyft's summary will help you with the first, but the second is on you.
Income Taxes
Income taxes are the typical taxes you'll need to pay when you earn money. Income taxes are calculated by taking your "gross" earnings from Lyft (including non-ride earnings) and subtracting out any expenses incurred while earning. Tips are still taxable income.
As a rule of thumb, try to set aside 30% of your income during a year to pay your income taxes.
Self-Employment Taxes
You'll need to pay your own Social Security and Medicare or self-employment taxes when Lyft classifies you as an "independent contractor" and not a full-time worker.
Self-employment tax is calculated by taking the total amount of your earnings from Lyft in one year, subtracting out any expenses incurred while earning (just like with income tax), then multiplying that number by the year's self-employment tax rate or 15.3% (on your first $137,700 of net income). Net income is your gross income after your qualified tax deductions.
If you need help finding how much you'll owe, try our self-employment tax calculator to easily find out.
Estimated or Quarterly Tax Payments
As a Lyft driver, it is up to you to calculate and pay taxes at the end of each quarter in which you made money from driving for Lyft.
You must pay estimated quarterly taxes four times a year if you expect to owe the IRS $1000 or more in taxes.
The quarterly tax payments are due on April 15, June 15, September 15, and January 15.
It is up to you to calculate your estimated tax and pay the appropriate amount to the IRS to avoid any penalties.
Lyft 1099 Tax Preparation Tips
When filling out a 1099 sheet, Lyft drivers really just need to look at Box 1 of either tax form.
On the 1099-K, the dollar amount in Box 1 is the total amount that passengers paid for the rides you gave for the year.
The 1099-NEC Box 1 dollar amount includes all your earnings that aren’t related to passenger payments.
The numbers on the form are the total amount your customers paid, including the Lyft commission. You'll need to deduct these Lyft fees from your income later as a business expense. Remember to stay on top of when 1098s are required to be submitted to the IRS>
What Tax Deductions Can You Claim As A 1099 Lyft Driver?
Tax deductions can help you avoid paying 1099 taxes. You’ll use Schedule C to organize and deduct all your business expenses to minimize your tax liability. A Schedule C is for self-employed taxpayers to input their profits and losses for their business. Lyft drivers can deduct Lyft fees, gas costs, vehicle maintenance, and other related expenses or the miles they drove for work.
Actual Expenses or Mileage Deduction? Which One Should You Take?
This is a question many 1099 Lyft drivers often ask. Should they record their actual expenses or track miles for tax season?
The answer is: it depends.
How often you use your vehicle for driving exclusively for business purposes or Lyft driving will determine which deduction you should take on your Lyft taxes.
But let me tell you, for most drivers, it would be the actual expense deduction. I'll tell you why in just a moment. Of course, it’s best to take either one of these deductions depending on which will result in a greater tax benefit. Let's quickly dive into each one.
Standard Mileage Deduction
The IRS introduced this method as a simple alternative to tracking all of your gas and maintenance receipts. This means you can figure out the expense by multiplying your business miles with per-mile rates (57.50 cents in 2020) to calculate total Lyft-related expenses. It's as easy as that.
Actual Expenses Deduction
Actual expense deduction is an IRS-approved method for claiming expenses related to the use of your car for business purposes.
Keeping track of your Lyft-related business expenses can feel a bit more challenging and time-consuming than tracking your standard mileage. However, it can save you hundreds of dollars when tax time rolls around.
There are a number of vehicle expenses Lyft 1099 drivers can claim as self-employed tax deductions by using the actual expenses deduction.
- Car registration fees and payments
- Cell phone business expenses
- Parking tickets or parking fees
- Tolls
- Depreciation
- Phone accessories
- Insurance
- Gasoline write-offs, repairs/service fees, or depreciation of your vehicle
- Passenger goodies
Check out our list of deductible business expenses for 1099 contractors.
If you do the math, actual expenses for drivers will usually have a greater tax benefit. In fact, I'll show you.
Comparing The Two Deductions
Imagine if you drove 3,000 miles for Lyft in the year.
You would only get to deduct $0.57.5 per mile for your expenses. This equals $1,725 tax deduction.
When you compare it to the IRS' actual expense deduction by adding up things like depreciation costs, repairs, registration, gas, insurance, etc, it would be much more worthwhile to take the actual expense deduction.
If you are looking for an easy way to automatically track and record your Lyft business deductions, try Bonsai's freelancer expense tracker to do it all for you. Our software can help you Identify all of your company expenses, personal deductions, and credits that you may be entitled to reduce your tax bill and increase your refund.
Here's To Happy Filing Your Lyft Taxes!
Driving for Lyft has a lot of benefits, but the tax filing process can feel complicated and time-consuming. Hopefully, this article has made Lyft taxes a little less intimidating for you.
We hope that Lyft will implement automatic tax withholdings in the near future to make driving even more lucrative. If you have any tax return questions or are unsure about anything in regards to your taxes, don't hesitate to reach out to a tax professional for tax advice. Check out our blog for more tax tips.
What Defines a Verbal Contract?
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
When is a Verbal Agreement Legally Binding?
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
- Offer and acceptance: An offer is made and accepted by another party involved in the agreement;
- Consideration: The involved parties must exchange something of value (money, a service, time, etc), this is known as consideration;
- Intention and certainty: All parties must fully understand the terms of the contract and intend to make a legally binding agreement freely; and
- Capacity: The parties must have the capacity to legally enter into the contract; they're above age and of a stable mindset.
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
How strong is a verbal agreement in court?
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
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get started nowWhen are verbal agreements not enforceable?
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
- The sale of real estate or vehicles
- Real estate leases lasting longer than one year.
- Property transfer following the death of the owner.
- The case of a party agreeing to pay debt for someone else.
- Any contract that requires more than a year to fulfil.
- A contract involving and exceeding a specified amount of money (which varies by state).
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
How are Verbal Contracts Enforced?
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
How can you prove an oral contract?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Written vs Verbal Contracts: What's the Verdict?
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Say hello to digital contracts
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
Benefits of written contracts
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Create Professional Contracts with Bonsai
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?
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