Starting an LLC for Uber and Lyft Drivers

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Written by: David Reed
Read 16 minLast updated on

There are a lot of people getting an LLC for companies like Uber and Lyft. A job where you are constantly on the road, so there is a risk in it. For that, you need insurance. The other thing is that everyone wants to make progress in their business, and that is exactly what an LLC would do for Uber and Lyft drivers. In this article, we will discuss everything about LLC for an Uber or Lyft.

A Quick Preview:

  1. The Most Beginner-Friendly Service — ZenBusiness
  2. The Cheapest, Most Efficient — IncFile
  3. The Most Experienced — NorthWest

What you Need to Know About LLCs as an Uber or Lyft Driver

Like many other things, an LLC would give you a lot of options, advantages, and disadvantages. Another matter is to understand how an LLC would benefit you as an Uber or Lyft driver. Here is how an LLC would benefit you as a Lyft or Uber driver:

  • An LLC will protect your personal assets
  • You will get more value out of your tax return and expenses
  • You will have more taxing options

There might be a lot more to an LLC, but first off, let us see the first major reason why you should be getting an LLC and where you stand without it. 

You are a Sole Proprietorship

The first matter is that as Uber and Lyft drivers, you work as a sole proprietorship. What that means is that although you are an employee of the company, your work is personal, and your business and personal are not separated. For example, if you get in an accident with your vehicle, first off, uber will probably not pay for it, and the second thing is that if you get a lawsuit, the person who sued you can go after your personal assets. Your personal assets are your bank accounts, your house, etc. 

Even if you are not guilty of that accident, you can still get sued and lose the case, so based on that, an Uber or Lyft driver who is a sole proprietor does not have protection for its personal assets. 

Limited Liability Protection

An LLC will protect your personal assets when you cause an accident when you are working. This is called limit liability protection. If you are in an LLC and you cause an accident, the other person cannot go after your personal assets, but they can only go after your business assets, such as your business bank account. For an LLC, you must have a business bank account, and the other person can go after it, but they cannot touch your bank account. 

There is one exception for an LLC when your personal assets are not protected, which is doing some wrong actions. Here are some examples: 

  • Working while being drunk
  • Knowing about a malfunction in your vehicle such as a broken seatbelt and not fixing it, then getting into an accident because of it
  • Being aware of any damage and not fixing it

In these cases, the fault is on you, and if you get sued, the LLC will not protect your personal assets either. 

The Tax Beneficial of an LLC

LLC for an Uber or Lyft driver will also help you with taxing. With an LLC you can choose either you want to be taxed as an S corporation or LLC pass-through taxing. We recommend choosing pass-through taxing because it is more reasonable for a person who makes less profit in his work. S corporation taxing is better for people who actually own a corporation, and they want to hold their profit and save it for the next year. 

Still, if you are not sure whether you want to be taxed as an S corporation or a pass-through, you can test them both. Start with pass-through taxing, and after a year of working with it, change your taxing way to S corporation and work with that another year as well. Once you have the numbers from both sides, compare them to each other and see which one is more tax-efficient for your business. You can also choose if you want to be taxed as a C corporation which is known as double taxation, but it is not very popular for Uber and Lyft drivers.

In a C corporation taxing, you will once be taxed at a corporate level and one other time at a personal level. Learn more about online incorporation services and what tax benefits you can get by registering an LLC.

Tax Return

Another matter in LLC that will help you with taxing is the tax return. As an Uber or Lyft driver, at the end of each year, you will receive a 1040. [1]

What you Need to Know About LLCs as an Uber or Lyft Driver

In that 1040, you will file your expenses, and based on that you will get a tax return. This is why as an Uber or Lyft driver, you need to keep note of every small purchase related to your business. Just like a shop that notes everything it sells. 

No matter if you are a sole proprietor or an LLC member, you will still get that 1040, and you can file your expenses, but because of the law and that your personal is separated from your business in an LLC, you will get a much more generous tax return. 

Easy to Set Up

Unlike other business structures, an LLC is easy to start and manage. As most states require, you must file the appropriate paperwork and pay the filing fee. Once the LLC is functional, there's not much else you need to do. 

Of course, you'll still need to run your business responsibly and comply with applicable laws and regulations. But in terms of paperwork and hassle, an LLC is one of the simplest business structures around.

Profit-sharing is a Breeze

An LLC's key benefit is flexibility in how members share profits. Unlike corporations, which must distribute profits evenly among shareholders, LLCs have the freedom to distribute profits in any way they see fit. This means that LLCs can choose to distribute profits based on each member's level of investment, involvement in the business, or any other criteria. 

As a result, LLCs can tailor their profit-sharing arrangement to best suit the business's needs. This flexibility makes LLCs an attractive option for many small businesses.

The Downside of an LLC

If there is one good thing about being a sole proprietor is that it is free to have, and it is much low-cost compared to other business structures. An LLC is more of an administrative type of business structure, and it is rather informal for Lyft and Uber drivers, so maintaining it is a bit more expensive than a sole proprietor. 

One downside that there is to LLC taxing is that you might have to pay an extra tax for LLC annual taxing. [2] In some states, there is no such thing, but in some other states such as California, you have to pay $800 as an LLC tax. Besides the LLC tax, LLC comes with some other costs.  

Costs of Forming an LLC for Uber and Lyft Drivers

It does take some money to form an LLC, and the average amount is $132, but the cost varies from state to state, and it ranges from $40 to $500 in New York state. Here is a map that will show you how much it takes to form an LLC in each state:

Costs of Forming an LLC for Uber and Lyft Drivers

Source: https://www.llcuniversity.com/what-is-the-average-cost-to-set-up-an-llc/ 

Other than that, and the payment you pay for LLC taxing in some states, there are other expenses such as choosing an LLC formation service. Later in this article, we will talk more about three of the best LLC service companies.

You also need to pay for a service registration agent, which if you choose to go with the three LLC companies that we will introduce in this article, you will get one for a whole year. 

Steps to Forming an LLC for Uber and Lyft Drivers

  1. Choose a location to form an LLC 
  2. Choose a name for your LLC 
  3. File articles of organization
  4. Get a registered agent
  5. Operating agreement forming

Location

First off, you need a place to work and form your LLC. Although you might choose a place that might cost a bit less for forming an LLC, you should also consider how that state would be for an Uber or Lyft driver. You can see in the picture below the amount of an Uber or Lyft driver's earnings in different states and cities.

Steps to Forming an LLC for Uber and Lyft Drivers

Source: https://www.businessinsider.com/cities-where-uber-and-lyft-drivers-make-the-most-money-2019-5?amp

Choosing a name

The name you choose must be a unique name for your state, and it cannot create any confusion for your business. You also cannot use direct references to your business such as "LLC Driving" or "Drive Sharing." Do not break the copyright law as well while choosing a name. 

Article of Organization

You should file the required documents to form an LLC and send it to them. 

Registered Agent

As we said, you need to have a registered agent to form an LLC. A registered agent is someone who will attend to your legal documentation and tax workings. Here is a list of best registered agents to choose from.

Operating Agreement

An operating agreement explains how you will run your LLC business and who has what roles. It is simply a guideline for your business.

Our List of the 3 Best LLCs for Uber and Lyft Drivers

The Most Beginner - Friendly Service - Editor’s Choice — ZenBusiness

Zenbusiness-cannabis

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Highlights

  • Fast responding and the most helpful customer support.
  • Providing you with the help of a registered agent.
  • Great customer support.

We were really not sure about which one of these 3 services to choose as they are all a great LLC for Uber and Lyft drivers. ZenBusiness is the greatest of these three for beginners because as a beginner you might not have a lot of profit, but ZenBusiness will give you the most value out of your business and investment.

ZenBusiness also has great customer support that will almost immediately answer you and resolve your problems. As a beginner, we thought such support can really help you to get familiar with how things work in an LLC. As mentioned before, they will also provide you with a registered agent throughout the year, and they have all the great features that you need to get started with an LLC.

The Cheapest, Most Efficient — IncFile

IncfilE

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Highlights

  • More than 16 years of experience.
  • The cheapest LLC company.
  • Creating an LLC for free.

Although IncFile was not our first choice, it is still one of the best LLC services available. They will form an LLC for you for free, and all of the features they offer you are also free. So if you do not want to spend that much money on forming an LLC, IncFile is your company to go with.

IncFile has been working for more than 16 years in this industry so they are very experienced, and they have great support. We just do not find their customer support to be as good as ZenBusinesse's. IncFile also has more than 27K reviews, and it has a major community behind its services. The difference between all of these three companies is unnoticeable, and if you choose to go with IncFile, you will still be as happy as choosing any other one.

The Most Experienced — NorthWest

Northwest-Registered-Agent-LLC

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Highlights

  • Over 20 years of experience.
  • Simple bundles and packages to choose from.
  • Excellent customer service and support.

Although NorthWest LLC service company is the most experienced one with many positive points about it, it is the most expensive one as well. NorthWest has great customer support, and the LLC service of this company is the easiest of these three to use.  

NorthWest company will also keep you happy, but it is not as good as ZenBusiness because it will not return you that much value, and it is not as good as IncFile because it is more expensive. This does not mean it is a terrible company. In fact, this company is good enough to keep you happy with your choice. It just depends on you and what is important for you. If you do not mind the money you spend on an LLC service, and you just want something easy, go with this one.

FAQ

Will my personal assets as an Uber or Lyft driver always be protected by the LLC?

No. The LLC will protect your personal assets only when you have not done any wrongdoings such as drunk driving or not repairing an issue in your vehicle. In those cases, an LLC will not protect you.

Am I not already insured by Uber or Lyft? 

Yes you are, but as a sole proprietor. Your personal assets are not, and Uber will not pay for what you lost in a lawsuit.

Conclusion

In this article, we discussed the LLC for Uber and Lyft, introducing 3 of the best services. In order to find out which services are the best for you, it is important to take your budget into consideration as the first factor. Next thing you have to pay attention to is how much value you will get out of the service for which you are paying. 

As mentioned, the difference between these companies is unnoticeable, but if you want the most value, go for ZenBusiness. Yes, you can get services for free from other services mentioned. However, if you want to invest in your LLC and make sure you get all the help you need, you will not regret getting the paid services.

In the end, if you have any further questions, make sure to comment on them, and tell us about what you want us to write about.

References:

  1. About form 1040, U.S. individual income tax return. Retrieved from: https://www.irs.gov/forms-pubs/about-form-1040

  2. LLC annual fees by state. Retrieved from: https://www.llcuniversity.com/llc-annual-fees-by-state/

Our research

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Services Considered

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Hours of Research

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