# How do deductions work?



## EnjoyEnJan (May 18, 2016)

Maybe Im missing something. 

Suppose I make 50,000 doing ridesharing and deduct 7,000 using standard deduction.

If I was originally going to pay tax on the fifty thousand, let's say 10,000, do I now pay 3,000? Or do I subtract 7,000 from 50,000 and pay tax on the 43,000?


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## SEAL Team 5 (Dec 19, 2015)

EnjoyEnJan said:


> Maybe Im missing something.
> 
> Suppose I make 50,000 doing ridesharing and deduct 7,000 using standard deduction.
> 
> If I was originally going to pay tax on the fifty thousand, let's say 10,000, do I now pay 3,000? Or do I subtract 7,000 from 50,000 and pay tax on the 43,000?


Deductions are for gross revenue. You DO NOT deduct operating cost from your tax burden. You would subtract the $7k from your $50k and then pay the tax burden on your net revenue of $43k.
On a side note there is no way you'll only have $7k in deductions with $50k of revenue generated from Uber. Most drivers are very close to having a zero tax burden with Uber. With the very basic question that you just asked may I suggest that you speak with a tax professional very soon.


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## EnjoyEnJan (May 18, 2016)

Already did HR block. Just wondering if I got ripped off more than usual.


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## UberTaxPro (Oct 3, 2014)

The only thing you deduct from what you owe is a "credit" like the EITC (Earned Income Tax Credit) for example.


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## Older Chauffeur (Oct 16, 2014)

EnjoyEnJan said:


> Maybe Im missing something.
> 
> Suppose I make 50,000 doing ridesharing and deduct 7,000 using standard deduction.
> 
> If I was originally going to pay tax on the fifty thousand, let's say 10,000, do I now pay 3,000? Or do I subtract 7,000 from 50,000 and pay tax on the 43,000?


You may be confusing some tax terms. (The following is over simplified.)

The "standard deduction" for most salary/wage earners is taken when they don't have enough allowable deductions like home mortgage interest, medical bills, real estate taxes, etc. Those items are subtracted from your Adjusted Gross Income, along with personal and dependent exemptions to arrive at your taxable income. This is done on Schedule A on your 1040.

Now when you are Self Employed, as in Uber/Ltft, you can use the Standard Mileage Rate or actual operating costs as "Expenses" that are subtracted from your business income to determine your "Net Profit or Loss." For this you use Scedule C and also Schedule SE to determine any FICA (self employed social security/Medicare taxes.) If you show a profit, it will be added to any other taxable income on your 1040.

You need to be sure all the fees, commissions, tolls, etc are subtracted from the gross Uber is showing they paid on your 1099k. The amount remaining should match your bank deposits.

Disclosure: I am not a tax professional .


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