Monthly Archives: October 2015

Uber, Lyft and Filing Your Income Taxes

We’ve all been there.  The thought of being  your own boss and leaving the 9-to-5, Monday-through-Friday grind to someone else.  Some of us take that jump and for others, the confines of a nice cubicle and a predictable  deposit into their bank account are more than enough.  But what if you are thinking of striking out on your own and joining one of those ride share companies?  Well, we strongly urge you to read this post as it has a LOT of information in it for you to consider before you take the plunge.

Worker Status
The first thing to know is that when you work for Uber or Lyft, you are not doing so as an “employee.”  Instead, you will be classified as an independent contractor.  As presented on Uber’s website:

“All Uber partners are independent contractors, so we do not withhold any taxes and partners are entirely responsible for their own tax obligations.  If you’re a partner based in the United States, you will receive a 1099-K and/or 1099-MISC form to report income you earned with Uber. You’ll receive one or both depending on the type of payment you earned in the calendar year.”

In this post we discuss the implications of being paid as an independent contractor versus an employee.  The big difference comes down to the fact that as an independent contractor 1) no taxes are taken out of the pay received and 2) the fact that the individual has to pay self-employment taxes in addition to income taxes.

Tax Considerations
In this post we talk about how those who are “self-employed” typically file their taxes and some of the issues they face.  What we’ll now discuss are those items specific to “drivers for hire” like taxi, livery and ride share operators.

Income  This one is pretty straightforward.  You report all of the money that you received while operating, including tip income.  Where we see people get into trouble is when they under report.  What do we mean?  Well, the IRS is going to get a copy of that 1099-K or 1099-MISC that you received.  If you report at least the amount that is shown on the document then you probably won’t hear anything from the IRS.  But if you report an amount that is LESS than what is shown, expect the IRS to come a knocking.  Why?  Well the IRS is going to ask you ” why did you only report $4,000 of income but Uber says you made $8,000?  We think you made at least that much but your return doesn’t reflect that.”

Now what if you say “I didn’t get a form so the IRS doesn’t know what I made!”  Can we say tax evasion?  So make sure you report every red cent that you made to stay out of trouble okay?

Operating Expenses  This one is the complicated one.  A taxpayer who uses an automobile for business purposes can figure their deduction by comparing the standard mileage rate with actual expenses and choosing the larger amount.  One would perform this analysis in every year and take the larger amount.  However, if the actual expense method is chosen in the first year, it must be used in all subsequent years until the vehicle is no longer used for business.

If the standard mileage rate method is used, the deduction is calculated by multiplying the number of business miles driven by the applicable standard mileage rate. The standard mileage rate eliminates the need to keep track of actual costs.   It is used to replace the “actual” cost of depreciation, lease payments, maintenance and repairs, gasoline, oil, insurance, and vehicle registration fees.   It does not include:

  1. Interest expense for a self-employed individual
  2. Personal property taxes
  3. Parking fees and tolls

The expense above would (depending on the circumstances) be claimed in addition to the amount calculated via the standard mileage rate.  Now, sometimes people (and tax practitioners) wonder if a “driver for hire” can use the standard mileage rate. Well back in 2010, the IRS issued Rev Proc 2010-51 and within it you can find that Rev Proc 2009-54 was modified as follows:

“Section 4.05(1) is modified to allow taxpayers to use the business standard mileage rate to calculate the amount of deductions for automobiles used for hire, such as taxicabs.”

You can also find language under the standard mileage discussion of Publication 463 that reads that “you can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above.”

Now, If you decide to base your deduction on your actual expenses, note that you should keep track of the following:

  • Business Percentage: The taxpayer must calculate the business percentage of vehicle expenses. Keep track of business miles driven for the year and divide that amount by the total miles driven for the year.
  • Cost of depreciation (leave this to your tax software or gal/guy)
  • Lease payments
  • Registration fees
  • Licenses
  • Gas
  • Oil
  • Insurance
  • Repairs
  • Tires
  • Garage rent
  • Tolls
  • Parking fees
  • Sales tax paid on the purchase of a car is added to the basis of the car and deducted through depreciation.
  • Fines for traffic violations are never deductible, even if incurred while driving for business.

Business Expenses  This is for all of the items that aren’t directly related to the cost of vehicle operations, but are allowed.  Buy bottles of water for your riders?  Have to pay a monthly cell phone bill so that riders can hail you?  Both are deductible expenses.  We suggest that you consult Publication 535 to see what is allowed.  The one thing to keep in mind is that if an item is used for both business and personal use, you should keep track of your business use as that is the percentage of the expense that you may deduct.

Comprehensive Example & Sample Tax Return
If you click this link, you will be able to download the sample tax return that is used in this example.  Having it handy will help you quickly follow along with what we’re about to discuss. Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.  Okay, the lawyers are happy now.  Shall we begin?

Need a Lyft?

Need a Lyft?

So, our good friend Memphis Raines has decided to earn some extra cash with one of the ride share companies.  He’s pretty good at what he does, get’s passengers to their place really fast and makes sure that he keeps and IRS Compliant Mileage Log (he doesn’t want the tax court disallowing his deduction).  During the year he raked in close to $63,000 in income for all that driving.  So what does Memphis’ tax return look like?  Let’s examine it.

Page 3 shows Mr. Raines’ Schedule C or Profit or Loss From Business.  He completes the top section listing all the pertinent information for his business.  If you look at the form, you will see that it contains very little information.  Looks like he spent close to $16,000 on car expense, another $143 on meals (drinks for his passengers) and another $2,000 for his business cell phone.  But let’s look a little closer at the car expense.

As indicated above, Memphis is allowed to take the larger of his actual expenses OR the amount calculated by using the standard mileage rate.  If you look at page 6, you can see all of the expense that Memphis spent to make that $63,000 in revenue.  But the thing to note is that he used his car 80.4% for business. The rest of those miles?  Well, let’s just say they were spent with his kid brother Kip and some girl named Sway!  Anyway, looks like he spent $13,000 (ignoring the fact depreciation isn’t a cash expense) to make all that money.  It also looks like he drove about 27,000 miles in a year – ouch!  So if you take the standard mileage deduction ($0.56 in 2014) and multiply in by the business mileage, you get a deduction of around $15,000.  Since that is larger than the actual expense deduction of $13,000, which do you think he will take?

Was it worth it?
So Memphis had fun driving around all year.  But was it worth it?  Only he knows the answer to that, but what we can analyze is the financial impact.  Page 1 shows that Memphis had a net profit from business of around $45,000 (i.e. $63,000 in revenue less $18,000 in expenses).  As Mr. Raines is single, he has very little other deductions.  He takes the standard deduction and receives one exemption.  This leaves him with taxable income of around $32,000.  On this income, he has to pay $4,335 in income taxes.  But wait, Memphis is his own boss right?  Well, that means that he has to pick up the share of Social Security and Medicare taxes that an employer usually has to pay for each employee it has.  The bill?  Another $6,400 in taxes!  So Memphis winds up with a whopping tax bill of around $11,000.  As he did not make estimated tax payments he’ll need to come up with a way to pay the IRS.

So in looking at this from another angle, Memphis took in $63,000.  He spent another $11,000 in real cash to make all that money.  He also has to pay the IRS around $11,000 in taxes.  So net, he took home around $41,000 when it’s all said and done.  Not bad for being your own boss.  But he did put about 27,000 miles on that sweet car of his, which will make selling it harder once it’s days as a ride share vehicle are done and it’s just hanging out in videos by The Cult.

Well, if all of this sounds like way too much to handle on your own and you’d rather let a professional deal with it, why not give us a call or shoot us an email?  We’d be happy to help make sure that you stay on Uncle Sam’s good side!

Our 10th Year Anniversary!

 

Thanks for the past 10 years!

Thanks for the past 10 years!

So this tax season was a little more challenging than anticipated; thus the reason this post is coming out in October.  Needless to say, back on September 14, 2005 Wilson Rogers & Company came into existence.  That means that 2015 marks 10 years of us being in business!  A lot has happened in that time frame.  So with this post, we thought we would not only recap our history, but just how we were able to make it that long.

2005
So after years of Jared getting “hey, your’re an accountant, I have a tax question for you.” he and Aaronita Wilson decided to start a tax company.  “What are we going to call it?” was the question for a while.  “How about we call it Rogers Wilson” Aaronita would say.  “Nah, how about Wilson Rogers?” Jared replied.  “Kind of sounds like a person.  Some estately dude on a horse playing polo.  It also sounds like another tax company we know…”  And with that, Wilson Rogers & Company took form.

2006
This was the first year that we actually started doing returns for pay.  Some of the key highlights:

  • Mr. Asberry becomes “client number one” by sending us his information.
  • Mr. Simpson becomes the first transmitted return as he was quicker to process than Mr. Asberry!
  • Jared and Aaronita get married on September 22, 2006, thus effectively removing a person named “Wilson” from the company.  Don’t worry, people still ask to speak to Wilson Rogers when they come to the office!

2007-2010
These were the “slow years” for the most part as there really wasn’t much that changed.  Client levels stayed pretty consistent and revenues were largely flat.  This was primarily due to the fact that both Aaronita and Jared maintained full time jobs within Corporate America.  This would start to change in the following year.

2011
Sometime towards the end of 2011, the decision was made that Jared would leave Corporate America to head up our first “retail” office.  Up until this point, all the tax returns were done “in house” by making appointments to pick up documents, preparing the returns at night and then providing the completed return to the client at a later date.  2011 was filled with decisions about health insurance, resignation dates and how to outfit the new office.  Somehow, someway, it all managed to come together.

2012
Tax Season? Ready, Set, Go!

Tax Season? Ready, Set, Go!

So this was the first tax season with the new office.  If you want to read the recap on how it went, you can check that out here.  Some of the things that you won’t see in this post:

  • Mr. Campbell had the honor of becoming “retail client number one” on a cold day in January.  He had all his paperwork…we didn’t have the nice frilly folders to give him his tax return in. Oh man…the early days!
  • At the same time we were opening the office, Jared was moonlighting with the fine folks of Intuit with their Turbotax Ask A Tax Expert (ATE) team.  It was also the year that he broke the wrist on his dominant hand and had to finish out tax season using his left hand.  Talk about bad handwriting!
  • We also took many steps into the marketing world to help get the word out.  One of these included developing relationships with sites like Teaspiller (which was later acquired by Intuit)

2013
So we survived another retail office tax season.  That recap can be found here.  The one standout item for this year was that Teaspiller was purchased by Intuit and folded into the TurboTax brand.  What that did was drive additional tax preparation business to us that was above and beyond what we had projected.  It also continued Jared’s relationship with Intuit, which further broadened in late April when he became certified as a Quickbooks Proadvisor.

2014
This was the year that we hired “employee number one” so that Jared could have a little help.  You can read all about Stephanie in a little interview that we did here.  If you want to read about the season, that is located in this post.  That post will also talk about how we began using bus benches to advertise to local traffic in our area!

2015
This was our fourth tax season with the office, and man did things really pick up.  They picked up so much that we hired Patricia as “employee number two” to keep up with things.  This was also the year that we launched www.fileoldtaxreturns.com to offer those needing to file older tax returns an option to do so.

How Did We Survive 10 Years?
Everyone knows the statistic that most businesses fail to make it to the 5 year mark.  While we have been lucky enough to avoid the top 5 reasons businesses fail, we must admit that it takes a little more than that to last for 10 years.  So what are the keys to the castle?  In summary we think:

  • Provide good service.  If you don’t do that, you’ll be lucky if you last beyond a year.
  • Value your customers. We have wonderful customers and we try to let them know that as frequently as possible.  Without them, there would be no Wilson Rogers & Company.
  • Stand out from your competitors.  We’ve all heard that insanity is defined as doing the same thing over and over and expecting a different result.  If you look, sound and act just like your competitors, expect to get their results – average!  So be bold. Do things differently. Give the public what they want, not what YOU think they want.
  • Make adjustments when necessary.  Getting to 10 years has not been a straight line drive.  We’ve had to adjust and pivot along the way.  Have we made mistakes? You bet! Have we learned from them? Continuously.  The key is to make adjustments when needed, forget the past and try to do better in the future.  If you can do that (combined with the above points), then maybe one day we’ll be reading about how you survived your first ten years.

Here’s to a bright future!