Question

In: Accounting

From a tax standpoint, would an Uber driver prefer to be considered an “employee” of Uber...

From a tax standpoint, would an Uber driver prefer to be considered an “employee” of Uber or an “independent business owner”? State the various advantages and disadvantages, if any, of each such status. Limit you answer only to tax considerations, including (but not necessarily limited to) depreciation and retirement saving considerations.

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Expert Solution

Looking to make some money on the side business, Some entrepreneurs are generating extra income by driving for Uber.if the company can exercise control over person work, such as setting hours, supervising, and providing person with the tools and equipment , need to do thejob, then the person could be an employee. If the company leaves it up to person  to set his own hours, requires to provide his own tools, equipment, and vehicles, and if it doesn't provide any training or supervision, then person are likely an independent contractor. uber driver use his own vehical.so uber driver considered independent business owner.   

employee   

independent contractor (uber driver)

How income is taxed Gross wages, minus pretax benefits. Subject to income tax, Social Security, and Medicare taxes. Gross receipts, minus allowable business deductions. Subject to income tax and self-employment tax.
Federal income tax yes yes
Social Security tax yes (pay half) yes (pay both halves)
Medicare tax yes (pay half) yes (pay both halves)
State income tax yes (where applicable) yes (where applicable)
Tax documents received at the end of the year Form W-2 Form 1099-MISC and/or Form 1099-K
Where reported on the tax return Form 1040, Line 1 Form 1040, Schedule C and Schedule 1
Documents you fill out when starting to work Forms I-9 and W-4 Form W-9
How taxes are paid Through payroll withholding Through estimated taxes
How work-related expenses are deducted Not deductible As business deductions on Schedule C

  uber driver regarded as an independent contractor, not an employee. This means driver will receive a 1099-tax form at the end of the year.

Uber classifies its drivers as independent contractors. An independent contractor is a non-employee who is running their own business. Uber doesn’t provide any employee benefits like health insurance or vacation.

If net earnings from Uber driver exceed $400, must report that income. driver should file a Form 1040 and attach Schedule C and Schedule SE to report Uber income.If net earnings from Uber are less than $400, not required to report Uber income.

t’s very important for you to keep track of all the deductible expenses you incur throughout the year since they will decrease the amount of profit uber driver will have to pay tax on.

uber driver business is driving,his biggest deduction will be car expenses. can deduct these expenses one of two ways: driver can use the standard mileage rate and take a mileage deduction. Alternatively, driver can deduct his actual expenses like gas, repairs, depreciation, lease expenses if lease his car, etc.

The standard mileage rate is the most popular because it requires less record keeping. Whatever method you use, it is vital that driver  keep track of his business mileage.

Uber drivers should be able to use the Section 199A deduction to deduct up to 20% of their business income.

Other deductions for an Uber driver would typically include:

  • The cost of drivers iPhone or other cell phones (100 percent deductible if you use it just for business, otherwise you can deduct the business use percentage)
  • Water, candies, gum and other items you provide your passengers
  • Any extra insurance coverage you obtain for your business
  • Fees and commissions Uber charge (however, don’t deduct any fees Uber takes directly from your pay and doesn’t include in the compensation listed on1099 form)
  • Home office deduction: driver  can qualify for this valuable deduction if he use a portion of his home exclusively for record keeping and other administrative tasks for your ridesharing business
  • Parking and tolls
  • Interest on a car loan, if use the car for personal and business use, the business use percentage is deductible on Schedule C
  • PayPal and credit card transaction fees pay

driver need to keep track of all of these and any other expenses incur for his ride-sharing business.   

driver must pay estimated taxes if he  expect to owe at least $1,000 in federal tax for the year from his ride-sharing business. he’ll probably need to earn a profit of at least $5,000 or $6,000 from his business to owe this much tax.

The IRS imposes modest interest penalties if he don’t pay enough estimated tax. To avoid the penalties, he must pay at least the smaller of:

  • 90 percent of your total tax due for the current year
  • 100 percent of the tax you paid the previous year or 110 percent if you’re a high-income taxpayer

High-income taxpayers-those with adjusted gross income (AGI) of more than $150,000 ($75,000 for married couples filing separate returns)-must pay 110 percent of their prior year’s income tax.

Quaterly tax payment due date

he estimated tax must ordinarily be paid in four installments: April 15, June 15, September 15, January 15 (of the following year).driver don’t have to start making payments until you actually earn income.

If don’t receive any income by March 31, he  can skip the April 15 payment. In this event, he ’d ordinarily make three payments for the year starting on June 15. If he don’t receive any income by May 31, he can skip the June 15 payment as well and so on.

Date whts due payment period
April 15 Pay first installment of estimated tax Jan. 1 – March 31
June 15 Pay second installment of estimated tax April 1 – May 31
Sept. 15 Pay third installment of estimated tax June 1 – Aug. 31
Jan. 15 Pay final installment of your previous year estimated taxes Sept. 1 – Dec. 31

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