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September 2019

5 Useful Tax Tips for Rideshare Drivers to Keep in Mind

As freelance jobs become more and more popular, opting to work as a rideshare driver is a great self-employment alternative that many are choosing nowadays. The way we think about commuting has been forever altered thanks to the popularity of platforms like Uber and Lyft, with an increasing demand for rideshare services, which also opens more positions for drivers to take. However, rideshare drivers must be aware of the tax implications this self-employment option brings. Thus, we have gathered five useful tax tips that rideshare drivers should keep in mind when filing their income.

One of the most important steps every freelancer or self-employed worker should follow is to create a system to track their tax deductions. Whether we decide to use an expense-tracking spreadsheet or a mobile app, being consistent and documenting every single business relates expense is a must. This will help us record and identify every deductible expense we made during the year, and facilitate our income tax filing process.

Many freelancers and self-employed workers tend to struggle when keeping track of their personal expenses and business expenses. A great way to solve this issue is by having separate bank accounts, one for our personal expenses, and one to use exclusively for business expenses. This will not only help us manage our personal and commercial finances better but will help us keep track of our business expenses, too.

Something that many people tend to ignore for some reason is that there are plenty of apps available, both free and paid, that can help us when tracking expenses and deductions. Taking advantage of this reliable and effective tools to document the number of trips we have, how often we charge fuel, the time we’ve spent driving, and any car repair costs will make our filing process more accurate and easier than ever.

Now, as rideshare drivers, we should always remember that mileage tracking represents our biggest tax deduction. Therefore, we must be very careful and consistent when recording the miles we drive. Since the IRS requires a mileage log when filing such deduction, we shouldn’t take this lightly. Otherwise, we might not be eligible for this deduction, and this would have a significant impact on our income taxes without a doubt.

Lastly, rideshare drivers who work with apps like Uber and Lyft have access to a very resourceful tool, their driver dashboard. This is where drivers can find very useful information, including their annual income, some of the deductions they might be eligible for, as well as the commissions that the apps are taking out of they pay.

How to Prove your Business Expenses and Deductions to the IRS

As business owners, dealing with the IRS and meeting all their requirements can be a demanding task, especially if this is the first year of our company. We might have a lot of questions regarding how to document, prove, and deduct our business expenses, and we might not know who to ask. That’s why it is important to make sure we have a professional tax advisor, and if they have experience in corporate tax, even better. This way, we will know we are complying with all IRS requirements and regulations, and that our business won’t be affected by any late fees, penalties, or missed deductions.

One of the best ways to prove our business expenses to the IRS is by having a designated account that will only be used to cover such costs. Whether it is a business credit card or a business checking account, having a designated account will help us with in many ways. For one, it will allow us to keep track of our business expenses in an accurate and effective way. It will also work to prove these expenses to the IRS, as no personal purchases should be registered on our business account’s statement.

This doesn’t mean that we cannot use our personal account to cover business expenses, as there is no specific requirement for this. However, it might make it more difficult for us to prove our business expenses to the IRS, especially those for travel and property. One great way to work this out is by keeping expenses logs and recording everything in a very detailed way. This includes recording the time and date of each expense, and recording them at the time, meaning on the same moment of the purchase, and not by the end of the day or, even worse, guessed by the end of the year.

When buying property for our business, choosing from listed property will make the process of proving these expenses to the IRS quite simple and easy. When we talk about listed property, we refer to several items that the IRS has determined to be used for both business and personal use. Items like printers, computers, cellphones, furniture, and vehicles are considered listed property. When we use them, whether it is for business or personal purposes, we should log the time, the date, and the purpose of using a given item. By the end of the year, we should be able to easily determine the percentage used for business purposes. As a result, deducting our expenses will be much easier.

Asking for the receipt of every single purchase we make during the year and storing them in a designated and properly labeled shoebox sounds like an easy and effective way to track our business expenses. However, if we don’t refine this system, we will end up with thousands of receipts and a whole lot of work to do when filing our company’s taxes. Arranging all these receipts by the week or the month can help us give our record more structure. Also, labeling each receipt on the same day of the purchase will make our filing system even cleaner easier, which will simplify our filing process when the time comes.

5 Essential Tax Tips for Millennials to Lower their Tax Bills

Thinking about filing our taxes comes with a feeling of confusion and stress for many of us, especially those who aren’t experienced enough with the whole process of filing their income tax and covering their balance. This is particularly true for the younger generations, Millennials and Gen Z who have recently started earning a steady income. Even when it might sound hard at first, there are many different ways in which we can lower our tax bills, making smart financial decisions and patiently waiting for the benefits to kick in. These are some of them.

One of the most efficient ways to save on tax payments is by taking advantage of the retirement plans many companies offer to their employees. Opting for a Traditional 401(k) or a Roth 401(k) account can help us save on taxes in the short or long run or even both. With these accounts, we have a salary deferral that goes straight towards our retirement account, which we would be able to access when we reach retirement age. With a Roth account, we would enjoy tax-free cash flow when we are no longer working, which is a great long-term advantage.

Choosing to purchase a life insurance policy is another great strategy that can come with some tax advantages, yet many young people tend to delay this process until later in life. Besides the benefits of having life insurance, most whole life policies offer the opportunity of withdrawing accumulated tax value on a tax-favored basis. However, we need to keep in mind that every plan and every policy and every company will have a different set of criteria. Therefore, we need to make sure we get advice from a professional, knowledgeable, and trustworthy insurance professional so that they can guide us through choosing the best plan for us.

When it comes to income tax saving tips for millennials, we need to remember that the younger generations tend to land part-time jobs or choose to work on their own. Self-employment comes with many tax benefits in the form of deductions that we can take advantage of. Home office deductions, for example, are a great way to lower our tax bill if we use a portion of our house to run our own business. We can also benefit from choosing the most appropriate business structure for our company, even if we are the owners and only worker. If we work with a knowledgeable advisor, they will be able to help us come with the best strategy for our business.

If we are looking for a long-term investment that will also help on our tax bills, homeownership is a great way to achieve this. There are many benefits that come from being a homeowner, such as the security of having a place to live, and the investment opportunity it represents if we choose to upgrade and sell our property when the time is right. However, we are also eligible for property tax deductions, which can significantly lower our tax bills if we meet certain criteria. In order to determine whether this would work for you, contact a professional tax advisor with experience in real estate and property taxes.

 

The Taxes-Security-Together Checklist Every Advisor Must Follow

Being able to file our taxes online sure comes with a lot of benefits, as it is a convenient way to make sure we stay compliant with the IRS while saving time and money on the process. However, one of the main concerns many taxpayers have regarding this process is knowing that their data will be safe. Therefore, every tax advisor must follow a checklist of security measures to guarantee that the information of their clients will be safe when handled on a digital format. Such guidelines have been laid out by the IRS in collaboration with the Security Summit, and these are some of the key security features to keep in mind.

In order to guarantee data security, tax advisors need to follow a set of measures that will ensure clients any sensitive information is safe and will not be accessed or misused by anyone who is not authorized to. The Taxes-Security-Together Checklist refers to the “Security Six” measures as:

  • Activate anti-virus software
  • Use a firewall
  • Opt for two-factor authentication methods
  • Use backup software and services
  • Use Drive encryption
  • Create and secure VPNs, or Virtual Private Networks

Besides following these data security measures, tax advisors must create a data security plan, too, which is required by federal law. This way, they will have better strategies to prevent and respond to security breaches. Requirements for data security plans are flexible, so they can fit the needs and circumstances of every tax preparation firm regardless of its size. However, these plans should focus on key risk areas, including employee management, training, information systems, and system failure detection.

Tax preparers need to remember that data security threats change and evolve faster than we think, so it is essential for them to educate themselves and remain alert to common phone call and email tax scams. Learning about spear-phishing emails and ransomware can help us avoid falling victim of tax scams.

Also, we need to understand that client data theft can have devastating effects, and recognizing the signs of malicious attempts to obtain sensitive information will help us become better protected. Some of the most common ones include:

  • Clients receiving IRS letters regarding suspicious tax returns on their behalf
  • Clients receiving tax transcripts they didn’t request
  • Having more tax returns filed through a practitioner’s Electronic Filing Identification Number than the ones that were submitted.

Lastly, any professional tax advisor needs to work on a data theft security plan in case they were victims of a cyberattack of if their clients’ sensitive data happened to get compromised. Such a plan such include:

  • Contacting the IRS Stakeholder Liaison as soon as possible
  • Collaborating with the IRS to protect the accounts of our clients
  • Hiring a cybersecurity expert in order to prevent and stop data theft.

Data protection cannot be taken lightly, and as tax advisors, it is our responsibility to make sure we follow every measure there is in order to guarantee our clients their information isn’t at risk when working with us.