Top Tax Deductions for Rideshare Drivers With Uber and Lyft
Since all Lyft and Uber drivers are required to file their tax returns as independent, self-employed persons, each driver must conduct their own small business as an outright corporation. This strategy offers greater potential for tax deductions for drivers who use rideshare. But can also make tax preparation and reporting business income more challenging.
Tax deductions for company expenses are a crucial and efficient way for self-employed individuals to reduce their taxes and ensure the accuracy of their tax returns. Everyday driving costs, such as the fees and tolls that Uber and Lyft deduct from your salary, are deductible. Your car-related expenses, such as maintenance, will be your biggest tax write-off.
You might also wish to remove the cost of passenger food, USB chargers, and cords. As well as additional cell phones for driving. More of your income will be liable to income and self-employment taxes if you don’t take these deductions.
Do Drivers Pay Quarterly Estimated Taxes?
Tax management for rideshare drivers is filing an income tax return after reporting earnings and paying anticipated taxes throughout the year.
You are required to submit estimated tax payments every three months as an independent contractor who drives for Uber or Lyft.
With the help of form 1040-ES, you may estimate your quarterly tax rate. When it comes time to file your annual return, you can record your income on the full form 1040. To report your profit and loss from rideshare driving activities, use Schedule C of Form 1040. You must refer to each 1099 form you receive from your rideshare business to complete Schedule C. You need to record the money you made from ridesharing on Form 1099-K.
Top Tax Breaks for Drivers of Ridesharing
Any required costs incurred by the firm may be deducted. There are numerous alternatives, even though the precise IRS rules govern when and how you might claim various assumptions.
Rideshare drivers ought to be permitted to deduct unavoidable expenses such as auto costs, platform fees, and any parking or toll payments incurred while working.
The IRS permits you to report and deduct all fuel and upkeep expenses related to operating your vehicle. But this necessitates meticulous record-keeping. However, you can claim a regular fixed rate based on your company mileage in place of specific car use charges.
The IRS mandates a mileage log, so you must keep track of your miles meticulously. However, you only need to keep track of a few additional expenses. To prevent confusion about mileage, be careful to keep your personal and driving logs separate.
The first year you use your car for business, you must file a tax deduction based on the usual mileage rate. In later years, you can alternate between the two approaches without incurring any fees. If your vehicle costs rise unexpectedly, you may decide to categorize certain expenses later.
Average Mileage Charge
For the first six months of 2022 (from January 1 to June 30), the regular mileage rate for using a vehicle, van, pickup, or panel truck is 58.5 cents per mile. For the following six months, it rises to 62.5 cents per mile (July 1st – December 31st). According to this rate, you accrue a vehicle-based tax deduction for each mile you travel for work-related purposes.
How to Calculate Mileage
Keep track of all the miles you drive for your rideshare with a running record. Multiplying your total business miles by the tax year’s mileage rate will get your total auto cost deduction based on the standard rate.
Charges for Mobile Devices
To use the rideshare platform and complete all of your duties as a rideshare driver, you must have a cell phone. Only for business use may you claim the cost of your phone plan as a business expense.
If you exclusively use the phone for work, you can write off the entire bill. If not, you will need to split the bill between your personal and company expenses. Observing how and when you utilize cellular data for the rideshare app or other work-related activities will be a good place to start
Upkeep and Repairs
If you choose not to deduct expenses for your vehicle using the normal mileage rate method, you can report a variety of vehicle charges. A driver for Uber or Lyft may deduct expenses for standard upkeep and repairs. Small maintenance expenses like inspections, tire rotations, and oil changes are all typical, anticipated expenses needed for the proper operation of your car.
Larger, more expensive repairs are allowable as deductions, but they are handled differently.
If you itemize your vehicle costs, you can also deduct the cost of car insurance. While the insurance of the Rideshare platform should take precedence while you are working, you don’t want to leave yourself defenseless if your insurance is void or insufficiently comprehensive.
Fees for Vehicle Registration
One of the ongoing costs you must cover if you want to keep driving your vehicle is registration fees. You can write off at least a portion of your vehicle registration costs as a business expense if operating your car is a necessary part of your job.
You can deduct a portion of your car payments as a business cost if you’re still paying off your car loan or simply leasing it for temporary use. Since you require the automobile for work, you can deduct a percentage of the costs as long as you use it for business purposes when driving for Uber or Lyft.
The damage your car sustains over time might be written off as depreciation. Depreciation acknowledges that the worth of your investment in the vehicle is eroding over time. However, if you also claim a deduction for business mileage, you cannot claim the depreciation deduction.
Everything you spend to maintain your vehicle is seen as a company cost. Every time you get your car washed or the interior cleaned, be sure to preserve the receipts and keep a record. They are deductible expenses.
Consult a Tax Expert to Increase Your Ridesharing Deductions
Consider visiting a qualified tax preparer at Your Part Time Accountant before you file your final tax return. We’ll examine your records to make sure you choose wisely to reduce your tax liability. You may go crazy collecting your receipts and adding deductions. But the money you’ll save will keep your rideshare business from encountering numerous obstacles.