7 Tax Deductions For Rideshare (Uber And Lyft) Drivers In 2024
If you're driving for Uber or Lyft in 2024, it's important to know how rideshare tax deductions work. As an independent contractor, you have the opportunity to reduce your taxable income by deducting certain expenses related to your driving job. We'll break down the most common rideshare tax deductions, how to track them, and give you a clearer picture of what you can write off at tax time.
What Are Rideshare Tax Deductions?
Rideshare tax deductions refer to expenses you incur as a driver for Uber or Lyft that the IRS allows you to deduct from your taxable income. These deductions help reduce the amount of taxes you owe by lowering your overall income that gets taxed. As an independent contractor, you are running your own business. This means you are eligible to claim deductions just like other small business owners.
Some common expenses you can deduct as a rideshare driver include costs for your car, phone, insurance, and other expenses directly related to your work. The IRS requires that these expenses be "ordinary and necessary" for your business. Fortunately, driving for a rideshare service like Uber or Lyft often comes with several qualifying expenses that can help reduce your tax liability.
How Do Rideshare Tax Deductions Work?
Understanding how to apply for rideshare tax deductions is a straightforward process. First, you'll need to track your business-related expenses throughout the year. Many rideshare drivers make the mistake of not keeping track of their mileage or receipts. This can leave a lot of money on the table. You’ll be able to maximize your deductions and keep more of your hard-earned money by staying organized.
When tax season rolls around, you’ll file your taxes as a self-employed individual. The IRS expects you to report your earnings and expenses accurately. The more deductions you can apply, the lower your taxable income will be. Remember, tax deductions reduce your income. Therefore, the more you claim, the less you'll have to pay in taxes.
Tax Deductions for Rideshare Drivers in 2024
Vehicle Expenses
For most rideshare drivers, their car is the most significant expense. Whether you're driving a sedan or an SUV, the car you use for ridesharing is a key part of your business. Luckily, the IRS allows you to deduct vehicle expenses in two primary ways: the standard mileage rate method and the actual expense method.
● Standard Mileage Rate Method
The simplest way to deduct vehicle expenses is by using the IRS standard mileage rate. For 2024, the standard rate is 65.5 cents per mile. This means that for every mile you drive for Uber or Lyft, you can deduct 65.5 cents from your taxable income.
To use this method, all you need to do is track the miles you drive for business purposes. This includes trips to pick up passengers, as well as trips driving to and from locations to get into rideshare mode. Keep in mind that you cannot deduct personal miles.
● Actual Expense Method
Alternatively, you can deduct your actual car expenses. This includes things like gas, maintenance, car insurance, registration fees, and even car depreciation. This method requires you to keep track of all the expenses associated with your vehicle.
If your car is used for both business and personal purposes, you’ll need to calculate the percentage of time you use it for ridesharing. The actual expense method might result in a higher deduction if your car expenses are significant. However, it does require more detailed recordkeeping.
Phone Bills
Since your phone is necessary for your rideshare work, the IRS allows you to deduct a portion of your phone expenses. If you use your phone for both personal and business purposes, you will need to estimate the percentage of time the phone is used for work. For example, if you use your phone 80% of the time for Uber or Lyft, you can deduct 80% of your phone bill.
In addition to the phone plan itself, you can also deduct expenses related to your mobile data and additional apps that help you with your job. For instance, if you pay for navigation apps or music subscriptions (like Spotify), you may also be able to write those off.
Internet Charges
Some drivers use mobile hotspots or Wi-Fi to stay connected while on the road. If you use these services primarily for work, you can deduct a portion of those costs as well. The same rules apply: if your internet service is used for both personal and business purposes, you can only deduct the percentage used for work.
Insurance
Insurance is an important part of being a rideshare driver. Rideshare companies like Uber and Lyft provide some coverage while you're driving. However, it’s typically not enough to protect you fully. Many drivers choose to purchase rideshare insurance. This offers more extensive coverage during business hours.
Since insurance is necessary for your rideshare business, it’s deductible. Keep in mind that you can only deduct the business portion of your insurance. For example, if you use your car 70% of the time for Uber, you can deduct 70% of your annual insurance premiums.
Maintenance and Repairs
Taking care of your car is key to staying on the road. As a rideshare driver, you’ll incur costs for things like oil changes, tire replacements, brake repairs, and other maintenance needs. These expenses are deductible, as they’re required to keep your vehicle in good working condition for your business.
Just like with vehicle expenses, if your car is used for both personal and business purposes, you can only deduct the portion related to your work. For instance, if you use your car 60% of the time for Uber, you can only deduct 60% of your maintenance costs.
Other Vehicle-Related Expenses
Aside from the obvious expenses like gas and maintenance, there are a few other vehicle-related expenses you can deduct. These include:
● Parking Fees: If you pay for parking while waiting for a ride or during a ride, those costs are deductible.
● Tolls: If you drive through tolls while on a ride, those tolls are also deductible.
● Car Washes: Keeping your car clean for passengers is a business expense, so you can deduct the cost of car washes.
● Registration Fees: You can deduct a portion of your car’s registration fees, based on the percentage of time the car is used for business.
Supplies and Equipment
As a rideshare driver, you may need to purchase various supplies and equipment for your car to make your rideshare business more efficient. This could include things like phone mounts, chargers, or cleaning supplies.
If you buy these items specifically for your business, you can deduct the cost. You can also deduct things like water bottles, snacks, and even hand sanitizer if you offer these to passengers. Keep track of all receipts for these items and make sure they are used for your rideshare business.
How to Track Your Rideshare Tax Deductions
The key to taking advantage of rideshare tax deductions is staying organized. Keep detailed records of your expenses and make sure you track your miles, receipts, and any other costs related to your driving. You can use apps designed for rideshare drivers to help you log your mileage and expenses, or simply keep a manual log.
When tax season comes, having everything organized will save you a lot of time and stress. If you're unsure of what qualifies for deductions, you may want to consider using tax software or working with a tax professional to make sure you’re claiming everything you’re entitled to.
Home Office Deduction
To qualify for the home office deduction, you must use part of your home only for business activities. This could be a dedicated room or even a space in a corner of your living room. You cannot claim a home office deduction if the space is used for both personal and business purposes.
There are two ways to calculate the home office deduction: the simplified method and the regular method.
● Simplified Method: This is the easiest way to calculate your deduction. The IRS allows a flat rate of $5 per square foot of your home office, up to a maximum of 300 square feet. This means you could deduct up to $1,500 for your home office (300 sq. ft. x $5).
● Regular Method: With this method, you’ll deduct a percentage of your home expenses based on the square footage of your office. If your office is 10% of your home's total space, you can deduct 10% of expenses like rent, utilities, and repairs. This method requires more detailed recordkeeping.
Office Supplies
If you use any office supplies or equipment for your rideshare business, you can deduct the cost of these items. This includes things like paper, pens, notebooks, or even a dedicated computer for managing your business. You can also deduct the cost of business-related software, such as apps you use to track mileage or expenses.
Meals and Entertainment
As a rideshare driver, you may purchase meals or drinks while you’re out on the job, especially on long shifts or when you’re traveling between fares. The IRS allows some of these expenses to be deductible. However, there are specific rules.
· Meal Deductions
You can deduct 50% of the cost of meals while working. This applies to meals you purchase while waiting for passengers, during the trip, or after completing a ride. For a meal to be deductible, it must be directly related to your business, so simply grabbing a snack for yourself won’t count.
In 2024, there is also a temporary exception that allows you to deduct 100% of the cost of meals from restaurants if the meal is purchased from a restaurant. This rule was implemented as a temporary measure to help businesses recover during the pandemic. It will continue through 2024.
· Meals During Business Travel
If you're traveling for business, including long trips or out-of-town rides, the cost of meals is also deductible. For instance, if you drive to another city for a rideshare job and buy meals along the way, those costs can be written off. Just remember that the meal must be reasonable for your business travel.
Health Insurance Premiums
Many rideshare drivers are self-employed. This means they don’t have employer-sponsored health insurance. However, you can deduct health insurance premiums as a business expense if you’re paying for your insurance. It includes premiums for medical, dental, and long-term care insurance.
The health insurance deduction is available to those who file a Schedule C and meet certain income requirements. Keep in mind that if you’re married and file jointly, your spouse’s health insurance premiums can also be deducted if they’re not eligible for employer-sponsored coverage.
This deduction can be particularly helpful if you're paying high premiums out of pocket.
Self-Employment Taxes and Retirement Contributions
As an independent contractor, you’ll pay self-employment taxes. They cover your Social Security and Medicare contributions. However, you can deduct the employer’s portion of these taxes, which is 50% of the total. This reduces your taxable income, which in turn lowers your tax bill.
For 2024, the self-employment tax rate is 15.3%, and the Social Security portion is 12.4% (up to a certain income limit). The Medicare portion is 2.9% with no income limit.
Retirement Savings Deductions
Rideshare drivers can also save for retirement and get tax benefits at the same time. Contributions to retirement accounts like a Solo 401(k) or SEP IRA are tax-deductible. These plans allow you to set aside a portion of your income for the future while lowering your current taxable income.
● Solo 401(k): This allows for larger contributions compared to a traditional IRA. You can contribute up to $22,500 in 2024, plus an additional $7,500 if you’re over 50. If you’re self-employed, you can contribute both as an employee and as an employer, which maximizes your retirement savings.
● SEP IRA: This retirement plan is available to self-employed individuals, and you can contribute up to 25% of your net earnings, with a maximum contribution of $66,000 for 2024.
Setting up a retirement plan not only secures your future but also brings significant tax savings today.
Tax Software and Professional Services
Tracking your income and expenses can get complicated, especially when you're a rideshare driver with many deductions. Thankfully, there are tools and services to help you with your taxes.
· Tax Software
Several tax software programs offer rideshare-specific features to help drivers calculate their deductions. Many of these tools allow you to import your mileage from rideshare apps and track your expenses. Some of the most popular software include TurboTax, H&R Block, and TaxSlayer.
These platforms can guide you through the process and even file your taxes for you. Most tax software programs will also allow you to file both your federal and state taxes. They can help you maximize your deductions while keeping things simple.
· Hiring a Tax Professional
If tax season stresses you out or you simply don’t have time to handle it on your own, you might want to consider hiring a tax professional. A CPA (Certified Public Accountant) or an enrolled agent can help confirm that you’re claiming every deduction you’re entitled to. They can also help you plan for future taxes and assist with filing. Hiring a tax professional does come with a fee. However, it could be worth the investment if you’re unsure of your tax situation.
Important Considerations
While it’s great to know what you can deduct as a rideshare driver, there are a few important things to keep in mind when filing your taxes.
· Recordkeeping Is Key
One of the most important things you can do as a rideshare driver is keep thorough records. The IRS doesn’t simply take your word for it when you claim a deduction. You need to have receipts, mileage logs, and documentation to back up your claims.
For mileage, you can either use a manual logbook or download a mileage tracking app to automatically track your business miles. For other expenses, keep all receipts and invoices, and store them safely for the year. Good recordkeeping makes filing taxes easier and guarantees that you’re ready if you ever get audited.
· Quarterly Estimated Payments
As an independent contractor, you won’t have taxes automatically withheld from your earnings. Instead, you’ll need to make quarterly estimated tax payments to the IRS. If you don’t pay enough throughout the year, you could end up owing a large amount when you file your return, along with penalties and interest.
To avoid this, make sure you’re setting aside money each quarter to cover your taxes. If you’re unsure how much to pay, use IRS Form 1040-ES or consult a tax professional.
Preparing for Tax Season as a Rideshare Driver
Tax season doesn’t have to feel overwhelming. By staying organized throughout the year and understanding what expenses you can deduct, you can handle your taxes with confidence. At Motopia, we’re committed to helping rideshare drivers succeed, not just on the road but also in managing their finances.
Staying Organized Throughout the Year
The key to a smooth tax season is preparation. Don’t wait until the last minute to gather your documents and receipts. Instead, create a simple system to track your income and expenses all year long.
● Use Apps to Track Mileage: Mileage-tracking apps can save you time and effort by automatically logging your trips. This means you never miss a deductible mile.
● Save Receipts: Keep a folder for all business-related expenses, such as gas receipts, parking fees, and car maintenance invoices. Digital tools can also store scanned copies of receipts.
● Log Your Earnings Weekly: Most rideshare platforms provide a breakdown of your weekly or monthly earnings. Save these reports to stay on top of your income.
● Separate Personal and Business Finances: Open a dedicated bank account for your rideshare business. This makes it easier to track expenses and simplifies recordkeeping.
Filing Taxes as a Rideshare Driver
When filing your taxes, you’ll need to report your income and claim deductions to reduce your taxable earnings. Here’s what to keep in mind.
● Forms You’ll Need
Rideshare drivers receive a 1099 form from Uber or Lyft if they earn at least $600 in non-driving income, such as bonuses or incentives. The most common forms you’ll need include:
● Form 1099-NEC: Reports non-employee compensation, such as bonuses.
● Form 1099-K: Summarizes your gross ride earnings, including passenger payments.
● Schedule C: Used to report your income and expenses as a self-employed individual.
● Schedule SE: Calculates self-employment taxes, including Social Security and Medicare contributions.
If you didn’t receive a 1099 form but earned income from ridesharing, you’re still required to report it. Your rideshare dashboard usually has all the information you need.
● Claiming Your Deductions
When completing Schedule C, list all your eligible deductions under business expenses. Use clear, accurate records to back up each deduction. This not only helps reduce your tax liability but also protects you in case of an audit.
Common Mistakes to Avoid
Rideshare drivers sometimes miss deductions or make errors that can result in higher tax bills or IRS penalties. Here’s how to avoid common pitfalls.
● Forgetting to Track All Miles: Many drivers forget to log miles driven between rides or while positioning themselves in busy areas. These trips count as business miles and are deductible. Use a reliable mileage tracker to record all qualifying trips.
● Misclassifying Personal and Business Expenses: If you use your car or phone for both personal and business purposes, only the business portion is deductible. Avoid claiming 100% of an expense unless it’s solely for rideshare work.
● Overlooking Small Expenses: Smaller costs, like cleaning supplies or phone chargers, may not seem significant, but they add up. Keeping track of all business-related purchases makes sure you don’t miss out on potential deductions.
● Not Paying Quarterly Taxes: Self-employed drivers are required to pay estimated taxes each quarter. Missing these payments can lead to penalties. Set aside a portion of your earnings for quarterly payments to avoid surprises.
Driving for Uber or Lyft offers flexibility and earning potential, but understanding rideshare tax deductions is key to keeping more of your hard-earned income. Motopia is here to help you succeed. Our rideshare-ready vehicles, flexible rent-to-own options, and easy pre-qualification process make it simple to get started or expand your driving business. Let us handle the vehicle side so you can focus on providing excellent service and managing your finances.
If you’re ready to start earning or need a reliable vehicle, contact us today or visit one of our pickup locations.
