Uber and Lyft: Top 8 Tax Deductions for Rideshare Drivers

All Lyft and Uber drivers must file their tax returns as independent, self-employed individuals, which means each driver represents themselves as their own small business! This approach can make tax preparation and reporting business income more difficult, but it also gives drivers extra opportunities for tax deductions. If you're curious about tax deductions for Uber drivers and tax deductions for Lyft drivers, read on. 

As a self-employed worker, tax deductions for business expenses are an important and effective way to lower your taxes and make your tax return precise and accurate. You can deduct everyday driving expenses, including fees and tolls that Uber and Lyft take out of your pay. Your most significant tax deductions will be costs related to your car, such as maintenance.  

You may also want to deduct expenses like snacks for passengers, USB chargers/cables, or different cell phones for driving. If you don't take these deductions, more of your income will be subject to income and self-employment taxes.

Do Rideshare Drivers Pay Quarterly Estimated Taxes?

Handling taxes for rideshare drivers means paying estimated taxes throughout the year and then reporting income on your income tax return.

As an independent contractor driving for Uber or Lyft, you must make estimated tax payments each quarter as your down payment on your income tax for the year. 

You can calculate your estimated tax rate each quarter with form 1040-ES and then use the complete form 1040 to report your income on your final yearly return. You'll use 1040 Schedule C to report your profit and loss from rideshare driving activities. To fill out Schedule C, you’ll need to consult each 1099 form you receive from your rideshare company. Form 1099-K is where you'll report the income you received through your rideshare work. Check out this article to learn more about calculating quarterly estimated taxes.

How Do Rideshare Drivers Pay Taxes?

Rideshare drivers file their tax returns as independent, self-employed individuals, which means they're their own small business on four wheels!

Top 8 Tax Deductions for Rideshare Drivers

Any necessary business expenses may be eligible as a deduction. Although the specific IRS rules control when and how you can claim certain assumptions, there are many options. 

Rideshare drivers should be able to claim unavoidable costs such as auto expenses, rideshare platform fees, and any costs associated with parking and tolls while working.

Mileage 

The IRS allows you to report and claim all fuel and maintenance costs associated with running your vehicle, but this will require extensive record-keeping. Instead of claiming specific vehicle use expenses, however, you can claim a standard preset rate based on your business mileage. 

You must carefully track the miles because the IRS requires a mileage log, but you will only have to record some other costs. Make sure to keep your personal and driving logs separate to avoid confusion about mileage. 

If you want to claim a deduction based on the standard mileage rate, you must do so in the first year you use your car for business. You can switch back and forth between the methods from year to year in later years without penalty. You might decide to itemize specific costs later if your vehicle costs get unusually high.

Standard Mileage Rate

The Internal Revenue Service (IRS) has announced an increase in the standard mileage deduction rate for business use in 2023. The rate for business use has been raised to 65.5 cents per mile driven. This rate applies to all vehicles used for business purposes which include cars, vans, pickup trucks, and panel trucks.

Calculating Your Mileage

Keep a running log of all the miles you drive for your rideshare. To calculate your total auto expenses deduction based on the standard rate, multiply your total business miles by the tax year’s mileage rate. 

Mobile Phone Expenses

As a rideshare driver, your cell phone is critical to access the rideshare platform and all of your work. You can deduct your phone plan’s cost as a business expense, but only for business use. 

You can deduct the entire bill if you only use the phone for work. Otherwise, you will need to divide the bill according to your personal and business use. One place to start will be to see how and when you use wireless data for the rideshare app or other work-related purposes.

Maintenance and Repair

You can report many different vehicle costs if you decide not to claim a deduction using the standard mileage rate method. An Uber or Lyft driver can claim deductions for routine repairs and maintenance. Small maintenance costs like inspections, tire rotations, and oil changes are all standard, expected costs required for your vehicle’s safe operation. 

You can deduct larger, more expensive repairs, but they are treated differently from deductions.

Insurance

Car insurance is another required vehicle cost you can claim if you itemize your vehicle costs. While the rideshare platform's insurance should take precedence when you are on the job, you don't want to leave yourself defenseless if their insurance falls through or doesn't cover enough costs. 

Vehicle Registration Fees

Registration fees are some of the regular expenses you have no choice but to pay if you want to continue using your vehicle. Because your daily work requires using your vehicle, you can deduct at least a portion of your vehicle registration fees as a business expense. 

Lease Payments

If you're still paying off your car purchase or only leasing it for non-permanent use, you can claim a portion of those payments as a business expense. You need the car for your work, so you can write off a portion of those costs in proportion to your business use of the vehicle as you drive for Uber or Lyft.

Depreciation

You can deduct the wear and tear your car receives over time with depreciation. Depreciation recognizes that your investment in the car is losing value over time. However, you can't claim the depreciation deduction if you claim a deduction for your business mileage.

Car Washes

Everything you do to keep your car in good shape is considered a business expense. Make sure you keep the receipts and make a record each time you take your vehicle to the car wash or get the interior cleaned out. Those costs are deductible. 

Consult a Tax Professional to Maximize Your Rideshare Deductions

Before you submit your final tax return, consider consulting with a professional tax preparer at 1-800Accountant. We'll review your records and ensure you make the best choices to minimize your tax burden. Gathering your receipts and adding deductions can drive you crazy, but the money you'll save will help your rideshare business avoid many bumps in the road.