https://www.cfo.com/legal/2020/08/california-judge-says-lyft-and-uber-drivers-are-employees/
The November election is coming quickly and it brings us face to face with Proposition 22. This initiative basically allows ride sharing companies such as Uber, Lyft and Instacart to define their workers as independent contractors instead of employees and to pay and control them as such.
I completely oppose Proposition 22. People who drive for Uber and Lyft or Instacart are not independent contractors. They are employees, and should be treated (and protected) as such. The real reason app-based transportation companies classify their drivers as independent contractors is simply to push as many costs onto them as possible. And their drivers, who have little bargaining power and therefore little choice, have to take it on. The ride-share companies like to blather on endlessly that what their drivers want is the flexibility of being independent contractors. But they don’t drive to have flexibility, they drive to make money. And they are getting screwed on it.
In future posts I will explain the specific reasons I refuse to support Prop. 22. First, however, I want to look at the question of whether or not ride-sharing drivers can actually make money.
I have been a tax preparer for many years, and I know what the Schedule C form (Profit or Loss From Business) of an Uber driver looks like. And generally speaking, it doesn’t look that profitable.
The first step on the Schedule C is to record gross income of the driver. After this we look at the expenses that the driver can deduct. And this is where the app-based drivers (like other self employed taxpayers) come face to face with how expensive it is to be a self employed driver and how little money they actually make.
Here are the big ones that really hurt the income of the drivers.
https://www.irs.gov/pub/irs-pdf/f1040sc.pdf
-Car Expenses
Here’s what drivers who are forced to use their own vehicles have to pay for: gas, oil, repairs, maintenance, parking, tolls, smog certification, license and registration, car payments, and insurance. Add to this the extra cost the driver must pay to impress the riders: car washes, wax jobs, detailing. Then there are some unexpected costs, such as special insurance policies to cover gaps in the usual insurance coverage or other risks (more on this later) related to driving.
Drivers need to keep detailed logs of the total miles driven so as to break them down among miles for commuting, personal use and self employment. Only miles driven for actual business are deductible (for anything, not just the expenses for driving the car). If they drive a thousand miles, and only 200 are for business, then they can deduct only 20% of all their expenses. And for many drivers it is a rude surprise to see how much they spend on their cars and how little they can deduct.
Do the ride-sharing companies pay for any of this? No.
-Depreciation
Depreciation is a write-off the government allows in recognition of the fact that the more you use your vehicle the more it wears out until it is worthless, or nearly so. It allows you to deduct the cost of your equipment every year for as many years as the government thinks it will last. For example, most cars get a write-off of a certain amount every year for five years. After that, no more deduction, regardless of how much longer you use your vehicle.
Drivers can count depreciation of their cars, cell phones, GPS devices and any other tangible thing that helps them in business and will wear out. But again, only the amount used for business gets deducted. If you get a deduction of $500 for the first year you use your vehicle, but your actual business use is only 20%, then you only get to deduct $100. And the driver receives this benefit for a limited number of years only. After you finish the allowed depreciation there is no more write off.
One thing that I don’t have to impress on my tax clients is that the nature of ride-share driving is pretty tough. There is a lot of hurry and wait, get there as quickly as possible, fight traffic, stop - start driving when you pick up at the airport, and sometimes stains and vomit in the back seat after the ride. I know what delivery and passenger driving is like and so do the drivers. What they sometimes don’t get is that 80% of the wear and tear on the car is from the Uber driving, but they get only 20% of the total costs to write off.
Do the ride-sharing companies pay anything to cover the wear and tear on your car? No.
-Legal and professional services
This is where drivers record the expense of having someone do their taxes.
Taxes for self employed people can be really complicated and tricky. You have to know how to properly calculate your business income on the form Schedule C, watch out for possible conflicts with Schedule A (Itemized Deductions), know how to figure your self employment tax on Schedule SE, calculate income for a possible Qualified Business Income deduction on form 8995, and get it all on the first page of your 1040 to finish the entire return. If you don’t know how to do that, or don’t want the aggravation and hassle, you have to pay a tax preparer to do it. And yes, they charge extra - sometimes a lot extra.
Even if you want to do it yourself you still pay for a tax software package. Another expense. And you have to take time away from driving to make a timely and accurate filing with the IRS.
Do the ride-share companies pay to have your taxes done? No.
-Supplies
There is pressure on drivers to provide all kinds of extra touches in their vehicles to keep passengers happy: bottles of water, a chest of ice to keep them cold, mints, tissues, vomit bags (?), wet wipes, napkins or towels, cell phone chargers. A good driver probably needs some cleaner to eliminate bad odors, erase stains or to repair seat cushions. To be safe the driver should have a camera to take photographs of an accident, a fight among passengers (or others), or claims of lost or damaged luggage. And a self employed person always needs log books for his rides and something to record income and expenses.
Do ride-share companies pay for any of these supplies? No.
-Utilities
If you want to make good money as an app-based driver you need a really good cell phone, and maybe a cheap backup in case of emergency. You probably need some special apps as well. These are deductible utility expenses. And if you use your laptop to get maps or information on where to get a reliable brake job that is another utility expense. But remember, you can’t deduct the entire amount unless you use these things only (100%) for business. If you don’t, you deduct the monthly service charge (or other cost) only for the time the utility was used in actual business. And do be prepared to show this exactly and with documentation. Just in case the IRS want to know.
Do the ride-sharing companies pay for your utilities? No.
-Taxes
Taxes are a huge burden that companies always try to push onto workers by falsely claiming they are independent contractors. These taxes include self employment taxes, unemployment taxes, employment training taxes and all the cost associated with paying those taxes.
This is a special category of exploitation that is so important I want to cover in the next posting.
Here’s a quick final thought: How much do most Uber and Lyft drivers make? About $9/hour, give or take.
Actually, it’s less. When you drive for Uber or Lyft or Instacart you can’t just show up at the job, do your work, and draw your pay. You don’t get to simply come home and relax at the end of the day because those companies have turned you into business owners who have a lot of responsibilities and burdens.
Proposition 22 is just a rich company scam to legally push costs on to their drivers that they themselves should pay. Uphold AB 5 and give drivers a chance to earn a decent amount of money for their hard work.
Now pick us up on part two.