One of the biggest issues facing rideshare drivers is how to calculate expenses and which method to use for end of the year tax deduction. Let’s start with the two types of tax deduction available to rideshare drivers and then I will discuss some of the tax deductibles that must be included.
To start off with, Uber, Lyft, and other rideshare companies do not employ their drivers. Rideshare drivers are self-employed, even if you have a full-time or part-time job with a wage and other benefits. The moment you sign the contract to work with Uber or Lyft, you are designated as self-employed as well, and you must make an end of the year report. Also, self-employed person can claim work-related expenses, and now with Trump’s tax bill, it is even more significant to your net income. However, do not wait until the end of the year to start calculating your expenses. Make sure you record every expense and save every receipt daily. By maintaining a daily log of expenses, the end of the year report becomes easy and fast. Keeping a daily record of expenses also helps you manage your budget.
The actual tax deduction process is found in Part II of Schedule C (Form 1040).
The two methods are:
- Standard Mileage Rate
- Actual Cost Method
Method 1: The Standard Mileage Rate (SMR)
This method is the easiest and is best used when your expenses are low, and your car costs are not high. For instance, this method includes depreciation and car purchase cost in its calculations, according to the IRS “A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS).” So, if you intend to calculate your direct car costs, such as purchase price and depreciation, you must use the second method.
The SMR is set at $0.545 per mile for 2018; this amount changes every year. The IRS researches every direct expense related to the use of a vehicle for work purposes. The SMR includes the following expenses:
- Lease payments
- Maintenance and repairs
- Vehicle registration
Note: If you used the second method a year previously, you would not be allowed to switch back to this method. So, if this is your first-time reporting, calculate the method that best serves your purposes before you decide to file taxes. Also, if you don’t own the car, or don’t own the lease on the car, you cannot use this method.
Calculating your rideshare miles is easy with this method, even if your car use is both personal and business. Since you have a recording of every mile driven while your Uber or Lyft app was on, you can create two lists, the first will contain your rideshare miles, the second, your personal ones. The IRS is only interested in your rideshare miles, and you will multiply those miles with the above SMR, and that will give you your tax-deductible expenses.
Method 2: Actual Driving Expenses and Costs
I split expenses and costs since it helps keep direct car costs separate in your mind. A direct car cost is the purchase price, the loan, and repayments as well as the depreciation, the rest are expenses. You would use this method if your direct costs significantly add and outweigh the outcome than if you used the SMR method. You can calculate the difference very easily, just take every cost and expense and add them up, then divide this number by the number of miles you have driven during rideshare, and this will give you your expenses per mile. If this number is higher then the SMR method, than use this one. Remember, next year the direct costs might go down since your car purchase/lease down-payment is no longer deductible, only the loan/lease payments, and the depreciation. This might tilt next years number in favor of the SMR.
- The big forgotten, the one cost that no other rideshare blog or article mentions, and don’t understand: Car Purchase Price! The CPP is the actual cost of the car, it is either paid in one go, or through a down payment and loans or a lease. However, the car has a value, and this value sets its depreciation. A down payment is not depreciation it is a direct cost, as part of the actual car purchase price.
- Depreciation: this is an IRS calculation that devalues your car every year. It earns that your car loses value over time and as such is considered a loss in your capital expenditure. It is tax deductible, and you calculate it by taking the car’s purchase prices and giving it a seven-year lifespan. The IRS will not accept depreciation on cars over seven years old. You then reduce the price by the accepted depreciation percentage that the market has set, some cars depreciate at a rate of 20% per annum, other 15%, and 10%. Before buying or leasing a car, check on its depreciation factor and calculate that into your yearly expenses.
- Gas; obviously.
- Insurance, when you buy a rideshare friendly policy, it is tax deductible.
- Maintenance includes oil changes, regular check-ups, tire changes and car part (including battery) replacements.
- Parking and Toll Fees: For every time you park or pay a toll while driving in periods 1 or 2, which are not included in the period three payment scheme, you must retain the receipts. These are tax deductibles, and since you will be doing a lot of parking, this is an important expense.
- Cell/Smart Phone, since this is an integral tool of operation, the cost of the cell phone as well as the plan you are using is tax deductible for the time you use it.
- Apps, as with the smartphone costs, if you buy an app to use it for ridesharing purposes, then it’s This includes subscriptions to entertainment channels used during the time your rideshare app is turned on.
- Gadgets, such as dash cams, mobile device holders, vomit bags, cleaning equipment and any other item and gadget you buy to deal with the operations of your driving work are tax deductible.
- Food and Drink for passengers, while I personally do not condone treating customers to a gourmet restaurant or even a fast food experience while driving, some drivers do, and this is a tax deductible.
- Health and Medical Insurance are deductible so long as your business is profitable.
Scoop of the Day
As a self-employed or single ownership LLC, part of your home expenses are deductible. No one discusses this in any rideshare forum, so here you get it first: The IRS requires you use form 8829, but you can claim your business portion of rent, utilities, repairs, insurance, mortgage interest, electricity, printer ink, paper, etc. You can also include education to improve skills for your job, banking fees, association dues, business gifts, industry magazines, advertising, and marketing expenses too.
Check online at the IRS site, or contact an accountant to get the best calculation.
Aman Bhangoo is the co-founder of RidesharingForum who helps rideshare drivers and riders to find answers to their most pressing questions. With over 5 years of experience, Aman brings a vast amount of knowledge, style and skills to help fellow drivers. He has given over 18,000 rides with Uber, and more than 6,800 rides with Lyft.