I first became a Lyft driver in 2013, back when they still gave you a fuzzy pink mustache to put on the front of your car. And I started my website for drivers — RidesharingDriver.com — in 2014.
With 10+ years of experience in the gig economy, you’d think that figuring out my taxes would be a breeze by now. But it’s not! Taxes still make me nervous — there’s so much to know and so many things you can get wrong.
And I’ve made lots of mistakes over the years. Nothing catastrophic that ruined my life, but I made the kind of mistakes that cost me time and money and gave me one more thing to worry about every night before bed.
Don’t do what I did! Here are 3 big tax mistakes I made and how to avoid them.
I didn’t track my miles
The standard mileage deduction is by far the #1 largest tax deduction that gig economy drivers can get.
You can shave thousands off your tax bill if you correctly track and deduct your mileage expenses.
Here’s how I messed up my mileage deduction: I didn’t track my miles for my first two years as a driver. I was aware of the standard mileage deduction, but I didn’t bother to actually keep track of my driving. At tax time, I estimated my deductible miles and hoped for the best.
I might have overestimated my miles, and I might have even underestimated them and left money on the table! There was no way to really know because I didn’t keep track.
I later learned that I was taking a big risk. If you get audited, the IRS can demand a mileage log that follows strict guidelines. Records that don’t have the correct details can get you into tax trouble.
The big risk is that you could lose some or all of your mileage deduction and end up owing money to the IRS.
Fortunately, there are so many easy ways to track your miles in a way that maximizes your deduction and prevents any IRS headaches.
Solo has an automatic mileage tracker that lets you set it and forget it. And several other apps out there will get the job done. You can even do a pencil and paper log if you trust yourself to keep it up.
The lesson is: Track your miles. Don’t leave money on the table, don’t claim more than you actually earned, and make sure to have the right records that will keep you out of trouble if the IRS comes knocking.
I prepared my own taxes to save money
When you have a traditional W-2 job, doing your own taxes without any outside help isn’t a bad option.
But your taxes start to get really complicated once you add business income to the mix. So complicated that it’s probably not the best idea to DIY your tax return. Outside help is a must—either from tax prep software or a professional tax preparer.
Here was my mistake: I did my own taxes for my first few years of gig work. I was confident about my skills: Why pay for tax software or tax prep if I can read a few blog posts and do it myself?
But doing my own taxes took up a ton of time—time that I could have spent on the road earning more money.
And I was never more nervous to submit a tax return. What if I made a big mistake? Without any outside help, there was no way to know.
Now, I pay for tax prep services so I can spend my time earning more money instead of spending a few weeks playing amateur CPA.
I recommend that every driver should at least pay for tax software. You would be surprised how advanced tax software has gotten. Every big-name tax program has options specifically for Uber, Lyft, and other gig work. All you have to do is follow the steps and use your tax summaries and 1099s.
Whether it’s through Solo or another platform, it’s absolutely worth the money. And the expense is entirely tax deductible! With Solo, you file both your state and federal taxes directly within the app. As a Pro or Pro Plus subscriber, you can even file your taxes for free. If you're a Basic subscriber, file for a flat fee of $30 (or $50 as a non-subscriber) with no upsells.
And if you’re feeling really in over your head, it may be worth paying for a tax preparer. Especially if it’s your first year in the gig economy and you have no idea where to start.
I delayed my taxes to wait for a 1099 form that wasn’t coming
Many drivers believe that you need a 1099 tax form from the gig companies before you can start doing your taxes. But there’s a problem: You won’t get a 1099 tax form in every situation, and it could take you weeks or months to figure out that you’re never getting your form.
Here’s something I told myself early on: “I made more than $600 from Lyft. I’ll figure out my taxes once they send me my 1099 form.”
But there was a problem: The 1099 tax form never arrived. The January 31st deadline came and went, and I spent the next few weeks trying to figure out what to do.
It turns out that my income didn’t meet the $20,000 reporting threshold for the specific 1099 form that Lyft was using that year.
Instead of sending a 1099, Lyft sent out a detailed tax summary with all the info I needed. I didn’t need to wait for the 1099.
Instead of getting my taxes out of the way, I waited around for a form that I didn’t need and never even arrived.
Most top gig apps like Uber, Lyft, DoorDash, and Instacart provide a detailed tax summary with all the information you need to do your taxes.
You’re ready to start your taxes as soon as the tax summary comes out in late January.
But you also need to be aware of the 1099 practices of all the gig apps that you work for. Keep a close on emails, in-app notifications, and help articles in every app.
To Sum it Up: Take advantage of all the help that’s out there
Looking back at my 3 tax mistakes, I think the #1 lesson I learned is that I needed to take full advantage of all the tools that are out there for drivers. You don’t need to do it alone—there is so much help. And a lot of that help is affordable or even free.
Mileage trackers, expense trackers, tax software, and the tools provided by the gig company can all work together to make your life a lot easier.
Track your miles, find tax software that you like, and get started on your taxes with confidence!
