Tax Deductions for Ride share Drivers

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Around this time every year, Uber and Lyft drivers are also expected to be a tax accountant, as an independent contractor you’re responsible for your own taxes. Every year in early February, Uber and Lyft send out 1099s for the prior tax year that detail how much you made, what fees they took out and the miles you drove. As an independent contractor, you’ll have to file a Schedule C in addition to your 1040.

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Although this may cause an extra burden the status of independent contractor allows you to take advantage of a number of tax deductions, which means more money in your pocket. Our mission at Imperial Acquisitions LLC is to simplify the pains that come with being an independent contractor. Below is a list of the most common ride share expenses, and when they should be considered tax deductible.

Parking Fees

The cost of parking fees incurred while working are deductible. These include garages and meters.

AAA membership

If AAA membership or other similar roadside assistance plan because of your driving business and don’t use it during a personal trip, then you can deduct the entire amount.

Car Washes

A driver needs to provide car washes to keep his or her customers happy. Because car washes are considered part of your business’s “ordinary and necessary” operating expenses, you can deduct a portion of those expenses on your tax returns.

Wireless Plan

If all of your phone calls are business related, you can deduct the total amount of your cell phone bills, including any activation fees. However, if you’re like most people, and you use your phone for both business and personal use, then you will have to determine the deductible business usage percentage.

Maintenance

Since you are probably using your vehicle for a combination of business and personal use, you will be able to deduct a proportion of your maintenance costs at tax time. This includes oil changes, tire rotations, inspecting and replacing brake pads, and anything else required to keep your car running smoothly

Gas

You can deduct your gas costs as long as its business related. This means that you can deduct gas costs that you incur while picking up customers and driving them to their destinations.

Insurance

Car insurance is just another critical cost of running your ride share business – you can’t drive without it! Like other actual expense deductions, remember that you can only deduction the amount proportionate to your business usage.

Standard Mileage

When filing taxes, you have a choice between two deduction methods: Standard Mileage or Actual Expenses, not both. The Standard Mileage deduction method is the easiest, but may not give you the largest deduction. The Actual Auto deduction method allows you to depreciate your vehicle and deduct most of your vehicle-related expenses by the percentage of business use but requires more detailed expense tracking.

Car Payment

Even if you lease, and don’t own your car, you can deduct a portion of the lease payment proportional to the business use of your vehicle.

Food and Drinks for Passengers

The IRS says that you can deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. That includes the food and drinks you purchase for your passengers. However, you can generally only deduct 50% of business-related food and drinks, so don’t go crazy spending because you will only be reimbursed for half of it.

Creative Ways to Lower Your Tax Liability After The Tax Year

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Listed below are a few innovative ways to lower your tax liability after the tax year has ended.

Contribute to retirement accounts

If you have not funded your retirement account for 2016 time is ticking! April 17, 2017 is the deadline for contributions to a Roth IRA and traditional IRA, deductible or not.

Making a deductible contribution will help lower your tax bill for the year. Plus, your contributions will compound tax-deferred. For 2016, the maximum IRA contribution you can make is $5,500 ($6,500 if you are age 50 or older by the end of the year). For self-employed persons, the maximum annual addition to SEPs and Keoghs for 2016 is $53,000.

 

Itemize your tax deductions

For those who are self-employed, own a home or live in a high-tax area. It’s really advantageous for you to itemize your deductions if you qualify. To be eligible itemize in 2016 you must have qualified expenses of more than $6,300 for singles and $12,600 for married couples filing jointly. Many deductions are well known, such as those for mortgage interest and charitable donations. However, taxpayers sometimes overlook miscellaneous expenses, which are deductible if the combined amount adds up to more than two percent of your adjusted gross income. These deductions include tax-preparation fees, job-searching expenses, business car expenses, and professional dues. You can also deduct the portion of medical expenses that exceed 10% percent of your adjusted gross income.

 

Home office tax deduction

People who have no fixed location for their businesses can claim a home office deduction if they use the space for administrative or management activities, even if they do not meet clients there. Doctors, for example, who consult at various hospitals, or plumbers who make house calls qualify. As always, you must use the space exclusively for business.

You are entitled to write off expenses that are associated with the portion of your home where you exclusively conduct business (such as rent, utilities, insurance and housekeeping). The percentage of these costs that is deductible is based on the square footage of the office to the total area of the house.

 

Frequently Asked Tax Questions

FAQs

What if I miss the tax deadline?

About ¼ of filers wait until the last two weeks to get their taxes done. If you cannot make the deadline there is an option to file for a 6 month extension using form 4868. However, please be aware you are still responsible for paying an estimated amount of what you may possibly owe on the day of the deadline (Tuesday April 18, 2017).

Where’s my refund?

For e-filers your average wait is approximately 21 days, you can check the status after 24 hours on the IRS website.  For those who choose not to file electronically your refund taxes approximately 4 weeks.

How much will I received in my refund?

The IRS reports the average refund is $3,120.

What happens if I do not file for the year?

There are two scenarios, first the government owes you. In this case you must file within three years to get the refund owed to you. Second, if you owe the government and you fail to file you will be subjected to penalties and interest for not filing; chronic non-filers may face criminal prosecution.

 

What You Need to Know This Tax Season

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  1. Tax season begins January 23, 2017; taxpayers who elect to e-file can submit returns to their software provider or tax professional before that date. But the returns will not be accepted by IRS until the systems open.
  2. Taxpayers have a few extra days to file their 2016 returns this year. The due date is April 18, 2017, and not April 15, 2017. The 15th is a Saturday which would normally result in a move to the following Monday (April 17, 2017). However, this year, Emancipation Day falls on Monday, April 17. Since that is a holiday the tax filing deadline will be postponed until Tuesday, April 18, 2017.
  3. Some taxpayers will have their tax refunds delayed. A new law requires the IRS to hold refunds tied to the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15th. The hold allows IRS to match information from forms W-2 and 1099 with information reported on tax returns. In prior years, refunds could be issued before forms were matched which increased the likelihood of fraud. This hold means that some taxpayers may need to wait until the week of February 27th for the refund.

Tips to Avoid Income Tax Fraud

Tax Season is under way and with that brings the very threat of income tax fraud. For those unaware; income tax fraud is a form of identity theft. Thieves will use your personal information to file an income tax return in your name. Most people only become aware they have been the victim of this act when they file their own income tax return and they are waiting for their refund, but instead they are notified by the IRS that they have already file a tax return and the refund has been distributed. In fact according to the IRS, this problem has been increasing in great numbers over the years.

Not only may you miss out on a potential refund, you may also run into trouble with the IRS; there is a possibility that IRS can send you inquiries regarding unreported income because someone may file using falsified w-2s.

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Here’s how perpetrators can possibly get your information:

  • Documents that are stolen
  • Carelessness
    • Not properly destroying critical information
    • Misplacing previous year tax returns
  • A dishonest preparer who may sell your information to identity thieves
  • Keep an eye of for odd emails, requesting you to click on a link

Here’s how you can protect yourself:

Find a reputable tax preparer. This is where I insert the shameless plug, come visit Imperial Acquisitions LLC, full service CPA & tax professionals. Find us on the web at www.imperialacq.com or visit us at 4 Sloan St., South Orange, NJ, 07079.

File early, preferably electronically (e-file)

Be careful how you mail you return (preferably drop it in a USPS or shipping location of your preference).

Secure or destroy all vital documents

In the case you do find out that someone has taken your information and filed a return. Contact the IRS immediately, and run your credit report. Because you are already a victim you want to access the damage and find out if anyone has opened up lines of credit in your name.

Your Tax Season Checklist

Tax season is upon us so prior to preparing your next tax return on your own or with professional help, it is important you gather certain documents to facilitate the process. While some will arrive via mail, other records will need to be generated using data collected in the previous calendar year.

Use this printable checklist provided to guide you while gathering all the documents needed to prepare your tax return. The documents mentioned are separated by category, and you may want to organize the hard copies in the same manner so you can locate them promptly.

Checklist

 

 

The printable checklist provided here:

Tax Checklist

Personal Information

In order for the Internal Revenue Service (IRS) to confirm your identity, it is necessary to provide the full name and date of birth for both you and your spouse (if filing jointly). You will also need to include Social Security numbers.

Finally, the IRS needs your routing and checking account information to determine where your refund, if applicable, should be deposited.

Dependents

Include the full name, date of birth, and Social Security numbers of dependents you plan to claim. Also, childcare records are required if you qualify and plan to take the accompanying tax credit, which will subsequently lower your tax liability or increase the refund amount.

Income

You will need to gather any documentation that reflects income earned from your employer, typically displayed in Form W-2.

In addition, you’ll need any Form 1099s income along with proceeds from alimony, jury duty, or any other miscellaneous income.

Business Income and Expenses

Any records that document business-related income and expenses need to be on hand when it’s time to file. Additionally, gather any records that reflect inventory, depreciable assets, rental property income and expenses, health-insurance premiums, and estimated tax payments. This documentation will enable your tax preparer to accurately compute your company’s taxable income, along with the aggregate amount of expenses you can use to offset this figure.

Educational Expenses

Forms 1098-T and E include amounts paid for tuition that can reduce your taxable income and tax liability.

You should also include receipts for any out-of-pocket expenses, along with scholarship and fellowship records.

Household Expenses

If you’re a homeowner, be sure to gather records for any property taxes and qualified energy-efficient home improvement expenses.

Vehicle Expenses

Self-employed individuals can claim mileage instead of gasoline expenses to offset business income. You can also include commuting expenses, such as parking and tolls.

Other Deductions and Credits

There are a host of additional tax deductions and credits available to help reduce your taxable income and liability, which can result in a larger refund. Here is a list of a few that may be applicable to you:

  • Disaster-related expenses
  • Casualty and theft loss
  • Adoption expenses
  • Out-of-pocket medical expenses
  • Medical Savings Account (MSA) contributions
  • Charitable contributions
  • Investment interest expenses
  • Moving expenses

 

2016 Tax Season Refund FAQs

FAQs

 

Q1: How quickly will I get my refund?
Most refunds are issued in less than 21 calendar days.

Q2: How will I know if IRS received my tax return and if my refund is being processed?
Use the Where’s My Refund? tool provided by the IRS to follow your tax return from receipt to issuance of your refund. While your tax return is being processed you can follow it through three stages: Return Received, Refund Approved and Refund Sent.

Q3: When can I start checking on my refund status?
You can start checking on the status of your return within 24 hours after we have received your electronically filed tax return or 4 weeks after you mail a paper tax return.

Q4: What is happening when Where’s My Refund? shows the status of my refund is: Refund Approved?
This means the IRS has processed your return and your refund has been approved. The IRS is now preparing to send your refund to your bank or directly to you in the mail if you requested a paper check. This status will tell you when your refund is scheduled to be sent to your bank and, if you elected the direct deposit option, a date by which it should be credited to your account. Please wait until it’s been five days from the date we sent the refund to your bank to check with your bank about the status of your refund. This time frame is provided to allow for the variations in how and when banks deposit funds.

Q5: What is happening when Where’s My Refund? shows the status of my tax return is: Refund Sent?
This means the IRS has sent your refund to your financial institution for direct deposit. This status will tell you when your refund was sent to your bank. It may take your financial institution 1 – 5 days to deposit the funds into your account. Please wait until it’s been five days from the date we sent the refund to your bank to check with your bank about the status of your refund. This time frame is provided to allow for the variations in how and when banks deposit funds. If you requested a paper check this means your check has been mailed. It could take several weeks for your check to arrive in the mail.

Q6: Why is my refund different than the amount reflected on the tax return I filed?
If you owe past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or certain federal nontax debts, such as student loans, all or part of your refund may be used (offset) to pay the past-due amount. Offsets for federal taxes are made by the IRS. All other offsets are made by the Treasury Department’s Bureau of Fiscal Services (BFS). For federal tax offsets, you will receive a notice from the IRS. For all other offsets, you will receive a notice from BFS.

Another reason your refund amount may be different is if we made changes to your tax return that changed your refund amount. In this case you will get a notice in the mail from us explaining the changes. These reasons will be reflected in Where’s My Refund if they apply to your refund.

Q7: What should I do if I know for sure the refund I receive is not from my tax account?
Do not cash a refund check or spend the direct deposit if you know it isn’t your refund. Bring or send it back uncashed to avoid a penalty.

Q8: It’s been longer than 21 days since the IRS received my return and I have not gotten my refund. Why?
The IRS work hard to issue refunds as quickly as possible, but some tax returns take longer to process than others for many reasons, including when a return:

  • includes errors,
  • is incomplete,
  • needs further review,
  • is impacted by identity theft or fraud,
  • includes Form 8379, Injured Spouse Allocation, which could take up to 14 weeks to process.

If the IRS needs more information to process your tax return, they will contact you by mail.

IRS representatives can only research the status of your return if it’s been 21 days or more since you filed electronically, more than six weeks since you mailed your paper return.

Q9: Will Where’s My Refund? provide a refund status if I filed an amended return?
No, it does not provide information about amended tax returns. However you can check the status of your Form 1040X (PDF), Amended U.S. Individual Income Tax Return, using the“Where’s My Amended Return?” (WMAR) online tool and the toll-free telephone line 866-464-2050 three weeks after you file your amended return. Where’s My Amended Return? provides personalized, automated, and the most up-to-date information on the status of amended returns in both English and Spanish. You can check the status of a Form 1040X filed for the current year and up to three years prior.