If you’re an Uber or Lyft driver, you may be wondering what impact the new tax reform legislation will have on you. Here are some key changes you should be aware of. Remember: the new law applies to 2018 taxes and beyond. Your 2017 taxes, which you file this spring, will be roughly the same as years previous to this.
Standard Deduction Going Up
Like other taxpayers, your standard deduction will nearly double in 2018 from $6,350 to $12,000 for individuals, and from $12,700 to $24,000 for joint filers. Rumors have been circulating that this hike in the standard deduction will make itemized business deductions obsolete for sole proprietors, which most Uber and Lyft drivers are. Nothing could be further from the truth. You can still deduct mileage, parking, tolls, food for passengers and any other allowable expenses on Schedule C of your federal tax form.
Deduction on Pass-Through Income
In addition to the deductions noted above, the new tax law mandates a 20% deduction on what’s commonly called pass-through income. To take advantage of this pass-through deduction, you won’t need to do a single thing. As a rideshare driver, you’re already a sole proprietor with pass-through income, so you will be eligible for this deduction.
But the law also puts a limit on how much income “specified service trades or businesses” can apply the deduction to. There’s a lot of debate already about which businesses this limit pertains to, so stay tuned. No matter how it all pans out, though, you will be able to take the deduction on any pass-through income up to $157,000 (filing single) and $315,000 (filing jointly).
New Limit on SALT Deductions
The new law places a $10,000 cap on deductions for state and local taxes (SALT), including property taxes. This change will have the greatest impact on homeowners in high property tax states like California and New York. In most other states, though, rideshare drivers will likely choose to take the standard deduction. That’s because, once they add up all the potential personal (not business) deductions they’re entitled to, including the $10,000 for SALT, they will discover that the standard deduction gives them a greater advantage than itemizing.
The Bottom Line
The deduction on pass-through income is set to expire on December 31, 2025, though it’s possible that congress may revisit it at that time. Other changes in the law may make health insurance more expensive, and could drive up state and local taxes. In the meantime, the new tax law appears to be very beneficial to Uber and Lyft drivers, at least as far as paying income tax goes.
For a more in-depth look at commonly deductible and nondeductible expenses for rideshare drivers, as well as other tax information, check out 1-800Accountant’s Tax Savings Calculator.
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