More Problems for Uber and Lyft Drivers in Oregon

Independent contractors will soon deal with some very specific tax issues.

(SALEM, Ore.) - We've written before about how the issues of liability, insurance and accountability have proven extremely problematic for Uber and Lyft, two taxi-like companies that are trying to integrate themselves into the Oregonian (Portland, Salem and Eugene specifically) market.

The problems do not stop there, though and they do not stop with the CEO's and state officials. The independent contractors who are hoping to earn a living by driving for these independent and “alternative” companies will soon start having to deal with some very specific tax issues too.

Drivers who sign up to transport passengers via the Lyft and Uber systems are employed as independent contractors. On the surface this looks pretty great: use your own car to drive people around, charge whatever you want (within the company’s guidelines) and viola! You’re employed again, and on your own terms. You make your own schedule, you can wear whatever you want, etc.

It also means that, if you are an independent contractor for Lyft or Uber that you are responsible for all of your own taxes and, make no mistake, independent taxi driving does generate taxable income.

When you are employed by a company, that company’s HR and accounting department are in charge of your tax support. They make sure that your federal, state, social security, medicare, etc taxes are taken out of your paycheck correctly and on time. When you are an independent contractor, you have to do all of that yourself.

Understanding Your Local Tax Codes

In addition to remembering to set aside money for federal and state taxes, the ADP.com blog points out in their post “Local Tax Code Locator” that there are also local tax issues to be considered as well.

Every county and city within the state of Oregon has its own laws about what you have to declare, what fees exist and what taxes you have to pay to run your own business--which, as an independent contractor, is technically what you are doing.

Pay in Advance

As an employee, you pay your taxes (or get that refund) once a year. As an independent contractor/small business owner, you are required to pay what is called estimated tax throughout the year.

If you don’t, not only will you have to pay everything in a single lump sum come tax time, you’ll also probably have some fines and fees lumped into that total as well.

Usually your estimated tax payments are based upon how much you earned last year but if this is your first year, a good rule is to set aside at least 30% of your income for those payments. If you really want to protect yourself, set aside 50%.

Understand Your Expenses and Deductions

One of the biggest perks of being an independent contractor/small business owner is that you can deduct a lot of your business expenses from your tax liability.

Because you will be driving your own car for Uber or Lyft, some of the maintenance, repairs, wear and tear, and even amount you spend on gas will be tax deductible.

It is important to not go overboard here. Not every penny you pay for gas, for the clothes you wear while transporting passengers, etc is tax deductible. Typically you can only deduct what you pay out specifically for work purposes.

If you use it in your personal life, it loses its "deductability". The rules are strict and fudging is frowned upon!

It’s Okay to Ask for Help

If you aren't good at minding details or are bad at math, the best thing that you can do for yourself and your financial health is hire an accountant to help you manage your money.

An accountant will help you make sure your taxes are paid on time, that you’re not risking an audit by deducting a bunch of stuff you shouldn't and that you don’t pay even a penny more than you should.

Think about these responsibilities before you sign up to transport passengers under the Lyft or Uber banner.

Are you ready to start your own business?