It’s not easy making a living in the gig economy. Rideshare drivers work hard for not great pay, so every little bit counts. Uber and Lyft take enough money out of your paycheck that you can’t afford to let taxes take any more.
Fortunately, there are many deductions available that rideshare drivers can use to reduce their tax burden this year. One of the best things you can do as a driver to increase your savings is to deduct mileage from your taxes.
If that sounds complicated, or you’re not sure how that works, don’t worry! It’ll all make sense soon.
Why Track Miles?
If you’re not tracking your miles while you drive, you’re missing out on significant savings! Business mileage and vehicle expenses are two of the most often overlooked business deductions you can claim on your taxes.
You need your car to work, and it’s a crucial part of the work you do. You use it for a business purpose as a rideshare driver, so you can claim a lot of what you’ve spent on your car as business expenses.
The most significant source of savings you’re likely to find is through your mileage. You can record the total number of miles you drove eligible for the mileage deduction, and then claim those on your tax returns.
Don’t Leave Out Eligible Miles
To effectively count your miles, you need to be clear on which miles you drive can count as an employee business expense. Every business mile is tax-deductible, but that doesn’t mean you can count the miles from your drive to the store.
Most rideshare or ride-hailing applications will track the miles you drive with passengers in the car, and all of those miles are tax-deductible. However, that’s only the start.
Every mile you drive on your way to pick up passengers, while you have a passenger in the car, and between passengers all count as part of your business-related miles. You should also count the miles it takes to drive home at the end of the day! You can’t necessarily count those miles if you’re running various personal errands, but the trip home itself represents a business expense.
But if the miles Uber or Lyft count for you isn’t the total count of eligible miles, how do you track mileage? Instead, you can find a good mileage tracking app. You should get a significant return on your investment, just with this easy step.
There are even some apps that will help you track your mileage and expenses as well, which can ensure you get the best possible outcome on your 2019 taxes.
Ensure You Report Expenses Correctly
Filling out a tax return is complicated. Many business owners lose out on significant savings because they don’t know all the available deductions or how to claim them.
Reporting taxes as a rideshare driver can be very complicated in general, but it also depends on how you file. You’re working for a company like Uber or Lyft, but you still qualify as self-employed. You’re a business owner, so you can organize your business however you want. A rideshare driver could benefit from filing as an LLC, which would allow them to protect many of their personal assets from liability.
Whatever kind of business entity you choose will determine what forms you have to file and how your taxes will be processed.
Considering Mileage or Actual Expenses
As you determine your tax bracket for the year, you can start with the standard deduction, which is $12,000 for an individual since the Tax Cuts and Jobs Act of 2017. The next step is to decide how exactly you’ll report your car as a small business tax deduction.
You have a choice. In deducting vehicle costs from your income, you can either add actual vehicle expenses or simply track the mileage. Accounting for vehicle expenses means records and receipts for gas, oil, and all relevant car repairs. If you use the car for personal trips outside of work as well, you won’t be able to claim 100% of those costs as business expenses.
The best option for rideshare drivers is usually to forgo the actual expenses and use your mileage. You’ll get a deduction from your income for every business mile you drove, according to the IRS’s standard mileage rates for the current tax year. That 2020 rate is 57.5 cents per mile in 2020.
Consult the Experts
Don’t let the tax law’s complexity and the stress of tax season stop you from getting the tax savings you deserve and keeping your hard-earned rideshare paycheck.
If you have questions about how the law applies to your business or how best to file and protect your income, consider reaching out to a professional tax consultant or accountant for advice.