Uber and Lyft Drivers: What Kind of Business Do You Want?
Congratulations! You’re a Business Owner! That’s right. When you signed on to be a rideshare driver you became a business owner and with that comes responsibility. Now you need to make grown-up decisions. What kind of business do you want to be?
What does this mean for you? It simply means you own a business. There is nothing legal about it but it does mean you are responsible for all business debts. It’s the easiest route to take but it will mean your business and personal assets aren’t separate. Let’s break it down.
- Your business losses and income will be reflected on your personal tax returns. You’ll have additional forms to fill out – schedules SE and C in addition to your 1040.
- Sole proprietorship is a popular way to go because it’s so easy to set up and it costs little to get it started.
- You have the option of giving your business a name but when it’s all said and done, all that matters is your legal name.
- Check into the possibility of having to apply for local business licenses. You may need to apply for them.
- This may be a good option for you if you have little income and little/no assets. As stated before, you will be responsible for all debts but there’s a good chance you won’t get sued for any liabilities. There aren’t many attorneys who want to go after someone who can’t pay for their new Mercedes.
LLC is the acronym for Limited Liability Corporation. What this means is you’ll still have a sole proprietorship but you’ll also have some protection. For example, if someone sues you in relation to your rideshare business, your personal assets are protected and your LLC assets would be held accountable. There is a “but” though – isn’t there always? If you screw up in a big way, your personal assets may be in trouble. These screw ups could include driving while intoxicated, not wearing your seatbelt or failing to repair a broken seatbelt and an accident occurs in which your passenger is hurt or any infraction that can be considered neglectful. Some other things to consider about an LLC:
- Your business losses and income are still reported on your personal tax return but the IRS will consider them separately.
- Some states require you pay taxes on an LLC so be sure you check into what your state tax laws are before filing for the LLC.
- Repeating because this is important: keep in mind your personal assets could be at risk if you screw up so use common sense. Follow the laws and keep your vehicle in good shape inside and out.
This one is a bit more involved than an LLC. You’ll still have the protection that an LLC provides and you are still a sole proprietorship but you’ll also have the right to pay yourself (the employer) a decent salary. This is a good option for a driver making a high yearly salary driving for Uber, Lyft or both. The formula works this way: let’s say you’ve made $60,000 as a driver and you want to pay yourself a salary of $45,000. What will happen is FICA taxes are only deducted from your income ($45,000) and the rest ($15,000) is considered unearned income and unearned income is only subject to state and federal taxes. Before proceeding with filing as an S-Corporation, keep in mind:
- You’ll really want to consult with a CPA and/or an attorney. Very important. This type of business can get a bit complex so you want to be sure you’ve got all of your bases covered.
- Your social security could be impacted by filing as an S-Corporation.
- Filing taxes as an S-Corporation will cost more money.
- It’s possible you’ll end up paying tax on unemployment insurance.
Deciding on the type of business you want is solely a personal choice. For most rideshare drivers a sole proprietorship is sufficient but you may want the protection an LLC offers. If you’re doing really well for yourself, then an S-Corporation may be the way to go. It’s all up to you. Just be sure to do your homework and research thoroughly all of your options before moving forward.