Rideshare services make it convenient for passengers to get where they need to go, and driving for companies like Uber or Lyft is a lucrative prospect for folks who do so on a full-time or part-time basis. Of course, the downside of driving for one of these services is that you're responsible for maintaining a fairly expensive piece of equipment -- your vehicle -- to earn money. The good news, however, is that by working as an independent contractor for one of these companies, you're privy to a number of key tax breaks that could put some cash back in your pocket. Here are a few to be aware of.
1. Deductions for vehicle-related expenses
Since you use your vehicle for work purposes, the money you spend to maintain it is deductible on your taxes. There are two ways you can claim this deduction. The first is to deduct the actual expense of operating your vehicle as it relates to your business. This means that you can tally up your insurance, maintenance, and auto repair costs, and claim a deduction based on that dollar amount.
That said, if you use your vehicle for personal matters as well, you can only deduct a portion of those expenses. For example, if your vehicle is driven for personal use 50% of the time, and for income-earning purposes the other 50% of the time, you only get to claim 50% of the aforementioned costs.
The second way you can claim a deduction against your vehicle is to take the standard IRS mileage deduction. For 2018, the approved rate is $0.545 per mile, and for 2019, it's $0.58 per mile. What you would do here is figure out exactly how many miles you drove for Uber, Lyft, or whatever company you work for, and multiply that total by the appropriate mileage rate. For example, if you drove 2,000 miles for Uber last year, you'd get a $1,090 deduction.
Keep in mind, however, that it's your responsibility to document any expenses you incur as they relate to your vehicle. This means retaining copies of receipts whenever you fill up gas, get your oil changed, or pay for repairs. If you're claiming mileage, you'll need to keep a detailed log showing your starting and ending points for each work-related trip you take.
2. Tolls and parking fees
If you're required to pay for tolls and parking in the course of your job, you can deduct those expenses on your taxes. Once again, you'll need to retain receipts showing when those costs were incurred in case the IRS decides to double check.
3. Refreshments for your passengers
Some Uber and Lyft drivers go the extra mile (no pun intended) by providing light refreshments for their passengers, like water or snacks. If you purchase food or drink items for your passengers to consume, they're considered deductible. But sorry -- the coffee you buy for yourself to stay awake on the job is not. Keep receipts of everything you buy so that you have proof of those purchases in the event of a tax audit (and to know what amount to claim).
4. Company commissions
One drawback of working for a big-name ridesharing service is that those companies take a cut of your earnings in the form of commissions. Maintain a record of how much you paid to the company you work for -- you can deduct that amount since you didn't actually get to keep it.
5. Your cell phone
You're generally required to have a cell phone to work for a major rideshare company -- that's how you'll claim your fares and communicate with passengers. As such, you're allowed to deduct a portion of your cell-phone costs, and that portion will depend on how much you use that phone for work versus personal calls. If it's a 50/50 split, for example -- meaning, you use your phone half the time for work -- you can claim half of your annual cell-phone costs. If you work for a rideshare service full-time, however, it might make sense to get a dedicated cell phone for that purpose.
Whether you do so full-time or as a side hustle, driving for a rideshare service is a great way to boost your income. Just be sure to make estimated quarterly tax payments on your earnings throughout the year, since, as an independent contractor, you won't have taxes deducted from your income. At the same time, be aware of the tax breaks you're entitled to and keep meticulous records so that you not only know what to claim on your tax return, but also have documentation in case the IRS decides to dig deeper.