9 tax deductions you have to be taking as a Rideshare Driver

Just thinking about taxes makes us sweat. The following guide is meant to ease your nerves and give you confidence as you prepare your form 1040 Schedule C – the net profit or loss from your self-employed business operations. We designed this guide specifically for rideshare drivers, but any self-employed worker who uses a car for business should benefit from these tips.

Tax filing methods

We recommend using a tax filing platform like TurboTax, since it educates and walks you through each of the deductions topics mentioned below. TurboTax costs $30-$50 to file your federal income tax return, and $37 for each state return.

“You have access to pretty much the same software that CPAs do, and since the software will walk you through everything, you might as well do it yourself. Over half of surveyed rideshare drivers use TurboTax, or similar software, to file.” - Harry Campbell, The Rideshare Guy

For all you cowboys and cowgirls who want to file your taxes on your own, make sure to complete Form 1040 Schedule C and Form 1040 Schedule SE, in addition to Form 1040 – Individual U.S. Income Tax Return.

Your Income

Whereas an employer withholds taxes (social security and medicare) on your behalf, as a 1099 contractor or entrepreneur, you are personally responsible for paying these taxes. When you receive your 1099 (or 1099-K for rideshare drivers), your total payment will be listed in Box 1a. Report this number on Line 1 of your Schedule C.

[Notes: Lyft does not provide a 1099-K if you received less than $20,000 or completed fewer than 200 rides. Retrieve your gross income from your Lyft summary page. Also, Uber and Lyft both use 485300 – Taxi and Limousine Service – as their business code.]

Your Deductions

Once you input your income, you can add any deductions that can be substantiated with receipts, mileage logs, bank statements, or your Stride Tax expense report. Below are nine of the most important items that you can deduct.

(1) Mileage: For the 2015 tax year, you can deduct 57.5 cents per mile for the mileage you drove in association with your self-employment. For rideshare drivers specifically you can deduct the miles on the way to pick up your first passenger, between passengers, and on your way home from your last passenger trip, in addition to the miles that you drove with passengers in your car. To find your 2015 mileage if you weren't tracking it, you can use the “on-trip mileage” line on your 2015 Uber Tax Summary statement. This will not capture the mileage between trips or on your commute, but it will give you a conservative number and your Uber receipts can act as proof. Multiply your total mileage by $0.575 to find the tax deductible amount. If you used Stride Tax to track your mileage, the amount is listed at the top of your Stride Tax Mileage and Expense Report.

[Where to deduct: Schedule C, Line 9. You will also need to complete Part IV “Information on Your Vehicle.” The sum of miles driven must also be reported on line 44a]

Important Note: Stride Tax calculates tax deductions and savings using the standard mileage rate. This rate is based on an the average fixed and variable costs of operating an automobile in the course of your business, inclusive of expenses like depreciation, insurance, repairs, tires, maintenance, gas, and oil. If you used the the “actual expenses method” in previous years of your ridesharing business, then you cannot use the standard mileage deduction. If you’re not sure what we’re talking about, read on to the actual expenses method later in this post.

(2) Commissions and Fees: You might have noticed that the gross income amount reported on Line 1 of Schedule C is higher than what you actually received as payment from Uber or Lyft throughout the year. This is because the number is inclusive of the commissions and fees that your ridesharing platform withdrew from your payment. Good news is that these fees and commissions are all tax deductible!

[Where to deduct: Schedule C, Line 10 “Commissions and Fees”]

(3) Cell Phone Expenses: As a rideshare driver, you need a reliable phone with sufficient storage and cell phone data. Your phone purchase, monthly service bill, power adapter, and dashboard holder are all tax deductible. If you use your phone for personal reasons as well, you can only deduct the approximate percentage that you use for work.

[Where to deduct: Schedule C, Line 22 “Supplies”]

(4) Car Interest Payment: Although you cannot deduct an auto loan in its entirety, you can deduct the percentage of the interest payment that can be attributed to the business use of your car. If you use your car for business purposes 75% of the time, and you made annual auto loan interest payments of $2,000, you can deduct $1,500.

[Where to deduct: Schedule C, Line 16b “Interest”]

(5) Car Washes: According to the IRS, an expense is tax deductible if it is common, accepted, and appropriate in your trade or business. As a rideshare driver, you know that passengers love stepping into a clean and spiffy car. Money that you spend on a washing your car and keeping it spotless for passengers is tax deductible. This includes car cleaning services or cleaning supplies. However, you cannot not deduct car expenses associated with mechanical or electrical auto maintenance. The IRS draws a line between business expenses (such as cleaning supplies, car washes, etc.) and capital expenses, which prolong or add value to your car. Capital expenses are not deductible.

[Where to deduct: Schedule C, Line 9. You will also need to complete Part IV “Information on Your Vehicle”]

(6) Passenger goodies: Passenger goodies such as bottled water, mints, and cell phone chargers are also tax-deductible business expenses. But be aware, only 50% of the cost for these items can be deducted.

[Where to deduct: Schedule C, Line 24b “Travel, meals, and entertainment - Deductible meals and entertainment”]

(7) Meals: Rideshare companies have referral programs that reward drivers with cash bonuses when their driver referrals sign up to drive with Uber/Lyft. Meals that you purchase while recruiting other drivers are also tax deductible. Similar to passenger goodies, only 50% of the cost for these items can be deducted.

[Where to deduct: Schedule C, Line 24b “Travel, meals, and entertainment - Deductible meals and entertainment”]

(8) Parking Fees and Road Tolls: Sometimes, driving for work or on your way to your first passenger means paying a road toll or temporary parking. If that toll/parking fee isn’t already reimbursed, it’s deductible!

[Where to deduct: Schedule C, Line 9. You will also need to complete Part IV]

(9) Subscription fees: If you pay for a music subscription such as Pandora, Spotify or Apple Music to entertain passengers while working, you can deduct this expense.

[Where to deduct: Schedule C, Line 24b “Travel, meals, and entertainment - Deductible meals and entertainment”]

But what about gas, insurance, car payments, and maintenance?

Actual car expenses such as gas, insurance, car payments, and maintenance cannot be claimed alongside the standard mileage deduction. Since the standard mileage rate is based on a study of the fixed and variable costs of operating an automobile for business purposes, expenses like depreciation, insurance, repairs, tires, maintenance, gas, and oil are already factored into this rate. When you record your mileage with Stride Tax, you are using the standard mileage deduction, rather than itemized car expense deductions. This means you don’t have to save receipts or report expenses for these car expenses. Note: Typically, the standard mileage deduction saves rideshare drivers more money than the actual car expense method.

When can the actual expenses method be better?

Under certain circumstances, the actual expense method may be more favorable – for example, this method may be better if your car maintenance expenses throughout the year were very high. Remember, if you use the actual expenses method in the first year that your car is operational for your business, you must continue to use this method in future years. This means that you might be sacrificing consistently high deductions in future years a marginally higher deduction this year. As mentioned previously, the standard mileage rate is relatively generous, in order to cover common operating expenses. Be certain you are comfortable using the actual expenses method in the coming years before choosing this direction. We highly recommend consulting a tax accountant if you’re thinking about opting for this method.

[The information above is meant only for guidance purposes and not as professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.]

[title image by Kyle May, body image by Joe Le Merou]