If you drive for a rideshare service such as Uber or Lyft you are considered an independent contractor. The new 2018 tax law includes a 20% pass through deduction which was designed to give small business owners a boost. Rideshare drivers as well as other freelances and independent contractors can benefit from this as well. Most drivers will be able to take a deduction equal to 20% of their total profit (income limits exist). For example, a driver who earns $30,000 from fares and has $5,000 in expenses, has a profit of $25,000. The deduction for this driver would be $5,000 (25,000 x 20%).
You are still eligible for the pass through deduction even if you only drive part time and have another job. The deduction is only applicable to the profit earned from the rideshare position. For example, a rideshare driver has a fulltime job from which he earns a salary of $50,000 and a W-2 at the end of the year. He drives a few weekends a month to make extra money and at the end of the year has earned $10,000 from fares and has $1,500 in expenses. His rideshare profit is $8,500 and his 20% deduction is $1,700.
Additional deductions exist for rideshare drivers. Make sure you are not missing out on these common tax deductions.
Mileage is probably the single largest deduction available to those working with a rideshare service. In general, drivers see the most benefit from taking the mileage deduction over deducting actual expenses. With that being said, there are still some expenses drivers are allowed to deduct in addition to the mileage.
If you are taking the standard mileage deduction then fuel, oil changes, tires, car payments, car maintenance, vehicle registration fees, etc., are not deductible. However, as a rideshare driver you can deduct the cost of car washes and car detailing.
Other Vehicle Expenses
Additional, often overlooked expenses you can deduct alongside the standard mileage deduction are interest paid on your vehicle loan and annual ad valorem taxes. Additionally, any tolls paid or parking costs incurred while driving for rideshare purposes are 100% deductible.
Goodies for Your Passengers
Many drivers offer treats to their passengers. Anything you purchase with the intent of distribution to your passengers for business purposes is deductible. This typically includes bottled water, gum, mints, candy, etc.
If you rent a phone from the rideshare company you work for then you can deduct the rental expense. If you use your personal phone, it’s not as straight forward.
An applicable usage rate must be assigned and that rate is applied to the overall bill each month to get the deduction that will be included on schedule C of the return. Examples of determining applicable usage rate is talk time, usage time, etc. For rideshare drivers, because they use GPS, usage time can often be calculated as working driving time.
For everything listed here, it is critical that you keep receipts and track mileage according to the IRS guidelines. For more about mileage deductions, rules you should know, and how to track your mileage, check out our previous blog post "All About Mileage."