Driving for Lyft is a great way to make some extra money, or even your full income. With a schedule you can tailor to fit your life, this gig is all about flexibility. Luckily, taxes as a self-employed individual can be easy too.
Understanding Quarterly Taxes for Lyft Drivers
As a Lyft driver, you are self-employed. Self-employed individuals are generally responsible for paying taxes on their income four times a year. A typical employee withholds a portion of their income for tax purposes, and the employer is responsible for another portion of their taxes. As a self-employed person, you’re responsible for both parts. Your estimated quarterly taxes will cover income tax on your earnings and self-employment tax. Self-employment tax is 15.3 percent—a combination of Social Security tax (12.4 percent) and Medicare tax (2.9 percent).
Paying quarterly taxes helps you pace throughout the year and alleviates the strain on cash flow when it’s time to file in April. Pacing is important because underpaying or failing to make on-time quarterly payments could result in a penalty for each month the return is late.
Should All Lyft Drivers File Quarterly Taxes?
The amount of money you earn driving is the real deciding factor in whether you are required by law to file quarterly taxes. If you owe more than $1,000 in taxes on your income as a driver for that tax year—after subtracting refundable credits and any income tax withholding—you are required to pay quarterly taxes.
It is worth noting, if you drive for Lyft and are also employed elsewhere—i.e. you have a full-time job and receive a W-2 at the end of the year—you could avoid the need to file quarterly by adjusting your withholding rate with your employer.
How to Calculate Quarterly Taxes
To calculate your quarterly taxes, you first must first estimate your taxable income. Take the total revenue you estimate you will earn (your gross income) and subtract any deductions for which you’re eligible. As a driver, you can take either the standard mileage deduction or deduct your actual expenses (gas, maintenance). No matter which you take, be sure to keep track of your mileage and save receipts. You can also deduct half of the self-employment tax (since this is the portion an employer would pay if you were not self-employed).
If you expect your annual revenue to be $50,000 and you have business deductions that total $15,000, your taxable income is $35,000.
If this is not your first year driving, you can base your taxes on the prior year’s earnings. If you’re starting from scratch, you can use the IRS Form 1040-ES, a worksheet that will help you calculate your taxable income and payments.
If you rather not have to calculate the taxable income yourself, Lyft drivers qualify for discounts on QuickBooks Self-Employed which does the math for you! Know what you owe each quarter before taxes are due, and easily organize income and expenses for instant tax filing.
After calculating your taxes, divide that number by four. The four payments are due April 15, June 17, September 16 and January 15, 2020.
Set Yourself Up for Success
Making quarterly estimated taxes means there are no surprises at tax time. Lyft drivers can use the QuickBooks Self-Employed app to track mileage. Keep clear records to make this entire tax preparation process easier. Designed specifically for independent contractors, QuickBooks has everything you need without the burden of over complicated, unnecessary features.