Most people don’t realize this, but when they sign up to become a rideshare driver, they are actually forming their own business. As such, you should set up a legal business entity to protect yourself and your assets.
Rideshare drivers usually start out as sole proprietors, which isn’t a separate legal entity. Your business income will be included on your personal income taxes and you’ll have to fill out a Schedule C & SE form in addition to your regular 1040.
Setting up a Limited Liability Company (LLC) goes a few steps further by separating your business and personal income on your income tax return and protecting your personal assets from any liability you may incur as a rideshare driver.
The third option is setting up your rideshare business as an S Corporation. In this case, you call yourself an employee and pay yourself a wage. This approach can save you money on Social Security and Medicare taxes.
To set up a sole proprietorship, you don’t have to do anything at all at the local, state and national level.
You only need to file your income taxes.
What you should check, however, is whether you need a license (other than your driver’s license that is) to operate as a rideshare driver in your state. You may incur a minimal fee for a license.
Setting up an LLC is typically pretty simple and an agent from the State can help guide you on what forms are needed for completion.
If you prefer to work with a lawyer in-person to set up your business, you can educate yourself about the business formation process on sites like nolo.com which have helpful guides. To set up an LLC, you must file formal paperwork called articles of incorporation.
The fee to file is between $100 and $800, depending on your state. You’ll also need to publish a notice about your intent to form an LLC, plus purchase any applicable licenses and permits.
Setting up an S corporation is slightly more complicated than setting up an LLC.
Don’t worry though, typically an LLC or a sole proprietorship is your best option as a rideshare driver.
If you form an LLC to work as a rideshare driver, you must send your EIN (Employer Identification Number) to Uber of Lyft in order to get paid and taxed appropriately.
The EIN takes the place of your social security number.
To enter the information for Uber, click the banking tab within the app and enter your number under Banking Details. For Lyft, click payout information in the app and edit the information on your W-9 form.
How to Avoid Traffic Tickets as a Rideshare Driver
Traffic tickets happen, especially when you are on the roads as often as the typical rideshare driver.
If you happen to get a ticket while working as a rideshare driver, you should fight the charge to get it stricken from your record. If you receive too many violations, you could be suspended from working for either Uber or Lyft.
Your best bet is to work with an attorney to keep your record clean.
Since getting too many traffic tickets will affect your ability to work as a rideshare driver, you should avoid getting them at all costs.
If you have received a ticket for standing in a no parking zone, simply learn from your mistakes and don’t park there again. Park a little further away and text your customers to tell them where you are.
For other violations such as running through a stop light or speeding, use Waze. This app has a distinct advantage over the Uber app in that it tells you where police and red light cameras are located, so you can be extra careful when you come into those areas.
Remember what you were told when you first learned how to drive: always practice defensive driving.
Do this by staying focused on your driving, watching out for pedestrians and cyclists, making sure everyone wears a seatbelt, encouraging riders to sit in the back seat.
Always remember to treat your customers with respect and drop them off in safe and permissible zones.
Tax Tips for Rideshare Drivers
As a driver for Uber or Lyft, you’ll report the income you earn from these companies on your personal income tax return unless you have set up an LLC or S corporation.
This is because Uber and Lyft employ people as contractors or “1099 workers” instead of as full-time employees.
Come tax season, you’ll have to file a Form 1040 and attach Schedule C and Schedule SE. IRS Schedule C is for Profit or Loss From Business. You’ll only pay taxes on your profits. You’ll also have to pay all of your Social Security and Medicare taxes through Schedule SE.
You can deduct expenses like gas, repairs, depreciation, lease expenses, etc., or take the standard per mile deduction.
Other typical expenses that may be deducted include cell phone bills, tolls and tollway transponders business taxes and fees and more.
Protection from accident claims (Uber, Lyft)
Be aware that an insurance gap exists between what your personal vehicle insurance offers for you and your passengers and the coverage that rideshare companies provide for their drivers.
These gaps could put you in danger of having to pay repair costs and medical expenses if you are involved in an accident while operating as a rideshare driver.
When accidents happen, drivers often become involved in legal battles over who will pay those expenses. No clear guidelines exist yet to ensure rideshare programs properly protect their drivers, so the onus is on you.
Talk with your personal insurance company about how you can protect yourself.
Make sure that you have rideshare insurance just in case you suffer an accident when operating your vehicle while working as a rideshare driver.
Familiarize yourself with the different situations when Uber and Lyft will cover the damages under their own policies.
The most likely scenario under which you can claim damages under the company’s rideshare policy is when you are actively driving with a passenger in your car. If you are waiting for a ride, Uber and Lyft’s policies may or may not apply.
If worst comes to worst and you are in an accident, first make sure everyone in the vehicle is okay. Document the accident and gather as much evidence as possible to back-up your claim. Don’t forget to contact your own insurance to report the accident. Report the incident to your rideshare company as well.
When shopping for a personal auto insurance policy that will cover your work as a rideshare driver, you can get “gap coverage,” that will protect you when Uber’s or Lyft’s policies will not.
You can also get a coverage extension that is integrated into your personal policy. Some insurance carriers offer a hybrid policy that is specifically designed to replace your personal plan if you work as a rideshare driver.
To compare vehicle insurance plans and choose the best one for you, visit a site like Insurify.com and use their handy comparison tool to see the pros and cons of each policy.
By getting the right insurance for rideshare driving, you will save yourself money and headaches in the long run!
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About The Author
Blake Ledbetter is a partner at the law firm of Conoscienti & Ledbetter in Atlanta, Georgia. Mr. Ledbetter possesses significant experience with Uber accident lawsuits and a range of legal issues involving rideshare drivers and riders.