Two ways of deducting vehicle expenses for gig economy drivers
As a gig economy driver, you are responsible for paying taxes from the income you receive working for such companies as Uber, Lyft and Instacart. It’s important to know that you can significantly lower taxable income by deducting expenses associated with the business use of your vehicle and certain business expenses. In this post, we’ll dig deeper into two methods of deducting vehicle expenses for gig economy drivers.
Standard mileage method
Standard mileage method is the simplest and the most widely used method of deducting your vehicle costs. In this case, you need to track total amount of miles you drive for business and then multiply this amount by the rate set by the IRS every year. The rates for business use of the car are:
- 58 cents per business mile in 2019
- 54.5 cents per business mile in 2018.
So, for example, if you’ve driven 5,000 miles in 2018, you need:
To multiply 5,000 miles by 0.545 = and you’ll receive $2,725
In this case, $2,725 is the amount you deduct from your total earnings to determine taxable income.
Rydar 2.0 tracks your miles in the automatic mode. You need to allow the app to access your location and set the status in the app to indicate what company you’re driving for (e.g. Uber, Lyft, Instacart, DoorDash, etc.) The app will then log your trips with all necessary info required by the IRS to put into your reports: date, time, distance, start and end points and business purpose of every trip.
Actual expenses method
There are certain cases when you may not be eligible to use the Standard mileage method of deducting vehicle expenses. In particular, you’re not eligible if
- You are operating five or more cars.
- You have claimed a depreciation deduction for the car using any method other than straight-line.
- You have claimed a Section 179 deduction on the car.
- You have claimed the special depreciation allowance on the car, etc.
What’s more, if you don’t drive long distances but spend quite a lot on your car maintenance, you may want to keep record of your actual vehicle expenses and compare the deductions using the two methods to find out which one accounts for higher amount (this works if you’re eligible to both methods, of course.)
For this method, you need to keep records of all expenses connected with your vehicle, such as gas, oil change, repairs and maintenance works, registration fees, etc. And, you also need to track your business and personal mileage to determine the percentage of business usage of your car. If you use the car to only do ridesharing or delivery, then this is 100% of business use, but if you use it for both personal and business matters, you need to track all your trips to find out how much you drive for business.
For example, if you’ve driven 10,000 miles in 2018
70% of which were for business
And you have the total of $7,000 spent on your vehicle
You need to multiply $7,000 by 70% = and get $4,900
$4,900 is the amount you deduct from your total earnings to determine taxable income.
In addition to both methods, you can deduct the cost of goods and services necessary for your rideshare or delivery business. In, for example, you purchase phone cables and bottles of water for your rideshare passengers, their costs are 100% deductible. You can add here parking fees, tolls and car wash. The complete list to choose from can be found in Rydar.
Download Rydar 2.0 for iOS and Android to keep track of your mileage and expenses and download detailed reports ready to be filed to the IRS.