In recent years, “Ride-Sharing” has become a popular alternative to traditional forms of transportation. It’s a great way to supplement your income in your free time. This inventive way of earning a few extra dollars does have tax implications.
Money earned from Uber driving is considered self-employment income and taxed as such. You may deduct eligible expenses from the fees you collect but calculating those expenses can requires detailed record-keeping. Not only must you keep track of the kilometers you drive for business, you must also record the rest of the kilometers you drive the vehicle throughout the year. There’s no set “per/km” rate for business vehicle mileage. It’s a pure total kms versus business km’s calculation.
Let’s say you began to drive for Uber in March and you’ve driven 500 km’s so far for paying customers. You’ve recorded every single trip in a log book – both the amount you were paid and the driving distance. You have been diligent about gas receipts too. Unless you’ve also recorded the odometer reading from your first trip as an Uber driver, your gas, insurance, repairs, etc. will not be eligible business expenses due to the calculation – km’s driven for business divided by total km’s driven.
If you’ve recorded the vehicle’s odometer reading when you began driving for Uber, you can claim a portion of all your expenses. If you’ve put on 2,000 km’s since day one, the calculation is as follows:
Km’s for business (Uber) = 500 Total km’s driven since March = 2,000
500/2000 = .25 or 25%
This means that you may apply 25% of the vehicle’s total expenses toward the Uber income you’ve earned. So don’t just keep your gas receipts. Keep paperwork from any repairs, insurance premiums, oil changes, tires, licensing fees, etc.
Business expenses pull double duty for Uber drivers. Not only do they reduce your taxable income, they also help lower any CPP payments you will be responsible for as well. Like other self-employed individuals, you are responsible for both your portion and what would have been an employer’s portion of your CPP contributions at tax time; the lower your taxable income, the lower the CPP due.
Most importantly, cash earned from drive-sharing is taxable income. As with any “off the books” earnings, you are required to declare this type of income on your tax return. If you fail to report your earnings, you may be subject to not only the tax due, you may also face fines and penalties for failing to report it.
TurboTax Home and Business makes doing your self-employed taxes simple. With step-by-step guidance that’s designed specifically for self-employed people, your taxes can be done quickly and accurately.