Pay Less to the IRS: Tax Deductions for Rideshare Drivers

Portrait of smiling lady driver showing thumb up

Industry estimates put the number of Uber drivers in the U.S. between four to five million. Lyft, meanwhile, has around 1.4 million drivers in its network. Between the two of these ridesharing companies, there are 120 million users of the service in the U.S.

These huge numbers show that many find being a rideshare driver a great way to earn some extra cash. Some even work as drivers, full time. However, transporting people from point A to point B still makes you an independent contractor. This means the ridesharing company you’re working under doesn’t withhold income tax from your earnings; you have to do that yourself, though companies like Tri-Merit can assist.

Lucky for you, rideshare drivers enjoy loads of tax deductions including the following:

1. Mileage deduction

The easiest and most straightforward benefit, the mileage deduction, multiplies the miles you’ve driven for work by the standard rate. This 2020, the Internal Revenue System (IRS) set the standard mileage rate at 57.5 cents per mile. The amount gets deducted from your taxable income to account for the costs of driving, including:

  • Gas
  • Car insurance
  • Car washes
  • Maintenance and repair
  • Vehicle registration fees
  • Lease payments
  • Depreciation of vehicle

This means, of course, that when you file for a mileage deduction, you cannot file for others from the list above.

2. Tolls and parking cost

You sometimes have to deal with tolls and parking costs when you’re picking passengers up or dropping them off. While these might not seem like huge expenses when taken individually, they can add up to a considerable amount when taken together. Fortunately, the IRS considers toll and parking fees tax-deductible. So, make sure to keep your receipts and records.

3. Phone and phone bill

Apart from your car, the second most important requirement of being a rideshare driver is a smartphone. After all, this is where you use the app to pick up passengers. Of course, you also need constant data and call credits while on duty. Both of these—the device and your phone bill—are tax-deductible. However, the only amount you can deduct is the portion that you use for business purposes. Any personal calls aren’t deductible. This is why it’s a good idea to have a separate phone that you use specifically when you’re working. It’s easier to track your call and text records, as well as data usage this way.

4. Auto memberships

You don’t want to be stranded because of a flat tire or an empty gas tank in the middle of the road, especially when you have a passenger, do you? This is why memberships in groups like AAA, which provide roadside assistance, is pretty handy when you’re an Uber or Lyft driver. The IRS recognizes this, which is why they also make membership fees to these groups tax-deductible.

5. Passenger entertainment

riding in a car pool

Little extras, such as bottles of water, candies, a phone charger—these are little extras that you can give your passengers for their benefit. As long as you’re not consuming them for yourself, these amenities can be tax-deductible. Keep the receipts and you’ll be able to file for them come tax season.

If you take advantage of these deductions, you can significantly lower your taxable income and pay a smaller amount of tax every year, making this side hustle more lucrative.

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