Drive for a Ride-Hailing Service? 4 Tax Deductions You Should Know About

You may be in line for some serious tax savings.

These days, a lot of people are picking up side hustles to give their income a boost. Given that living costs are up across the board thanks to inflation, that's not a bad move. In fact, a side hustle could not only help you cover higher living expenses, but also make it possible to pad your savings and build more of a financial cushion.

Now, there are different side gigs you could fall back on to grow your earnings, but driving for a ride-hailing service is a popular one. The upside of this gig is that it's very flexible -- you can pick up passengers at your convenience and work extra hours when a greater need for money arises.

Driving for a ride-hailing service also means you may be in line for certain deductions when you file your taxes. Here are four you may be eligible to claim.

1. Car washes

When you're in the business of driving passengers around town, it's important to have a vehicle that looks clean and presentable. That could mean paying for more frequent car washes than you'd normally need. The good news is that this expense is a valid deduction on your taxes.

2. Car repairs

The more you use your vehicle, the more likely you may be to encounter a repair situation. You can deduct your auto repair costs on your tax return, but only to a point.

The reason? Chances are, you use your vehicle for both money-earning purposes and your own personal needs. If you're claiming a tax deduction, you'll need to figure out how often your vehicle is driven for work purposes versus personal use. If you decide that it's a 50/50 split, then you can claim 50% of your auto repairs on your taxes, since that's the portion that relates to your side gig.

3. Passenger amenities

Many people who drive for a ride-hailing service rely on generous tips to make a decent income. And you may be more likely to win customers over by providing extra amenities during their trips. If you regularly stock your vehicle with things like tissues, sanitizer, disposable masks, or water bottles for your passengers, those are all expenses you can deduct on your taxes.

4. Your cellphone bills

In order to work for a ride-hailing service, you need a cellphone with that company's app -- that's your ticket to securing fares and communicating with passengers. As such, you can deduct a portion of your cellphone on your taxes.

But as is the case with auto repairs, you'll need to figure out how much you use your cellphone for work purposes versus personal use. If you determine you use your phone for your own benefit 70% of the time and for work purposes 30% of the time, then you can deduct 30% of your cellphone on your taxes.

Now a quick note about personal use: You may be wondering how the IRS will know how frequently you use your phone for what purpose. And the reality is in many cases, it won't. However, if you claim 90% or 100% business use of your phone when you drive for a ride-hailing service part-time, the IRS will likely get suspicious -- and it may choose to audit your return. If you stick to a reasonable percentage of work-related usage, there's a good chance that won't happen.

Claim the deductions you're entitled to

Driving for a ride-hailing service could end up being a lucrative side gig for you. And if you play your cards right when filing your taxes, you may be able to eke out even more savings.

That said, if this is your first time claiming business expenses related to a side hustle, you may want to consider hiring a tax professional for help filing your return. A tax professional will be able to tell you exactly which expenses you can and cannot deduct, so it may be worth paying a modest fee for that accuracy and peace of mind.