In the age of a rapidly expanding on-demand economy, technology companies are fulfilling consumer demand through immediate access to goods and services. Potentially reducing the need for organized business transactions, this model uses a technological platform or “app” accessed via a mobile phone to conveniently connect with business services, food delivery, and home services with a click of a button. Touting record highs in new drivers and ridership in the millions, the most popular on-demand driver apps include familiar faces like Uber and Lyft. With several options existing for hassle-free ways to get from point A to point B after a late night out or getting to the airport for an early morning flight, on-demand rideshare drivers are extraordinarily IN demand!
Since rideshare drivers are considered independent contractors, this means they are self-employed. When rideshare companies send a paycheck, it is likely that no taxes have been taken out. As a self-employed business owner, tracking expenses and taking care of taxes are part of the deal. Just about any work-related dollar spent will be a tax-deductible business expense including gas mileage, insurance, and repairs. A few ways drivers can cut their costs are as follows:
- In 2016, the standard business rate for the use of a vehicle for business is a 54 cent per mile deduction for every business mile driven. If a rideshare travels any number of miles with a passenger, 54 cents per mile is tallied and deducted. The IRS could disallow this deduction without proper documentation, so keeping a mileage log for the usage of a personal vehicle for ridesharing is critical.
- Meals, snacks and beverages for passengers are also a deductible business expense. Although drivers cannot deduct meals for themselves, water, gum, or granola bars for passengers are deductible at 50% of the purchase price and be sure to keep track of those receipts!
- Parking and tollway charges that relate to business driving can also be deducted. If driving a passenger requires a driver the pay for parking, cross through a toll booth, or put change in parking meter, these are all examples of eligible expenses.
- Car interest, car washes, and mobile phone expenses may be written off as expenses, but only the portions actually used for business. If a driver only drives part-time with a passenger, these eligible expenses are proportional to the business use. An example would be if a cell phone is used 40% of the time for business and 60% for personal use, then 40% of the cell phone expense is deductible.
Tracking expenses, mileage, and deduction are excellent ways to minimize taxes and ideally making more money. While the above are just a few of the many options for deducting expenses as a rideshare driver, the IRS guidelines for Business Use of Car can be found here: https://www.irs.gov/taxtopics/tc510.html and the guidelines for Business Entertainment Expenses here: https://www.irs.gov/taxtopics/tc512.html.
So whether the choice is Lyft, Uber, or other rideshare option, diversifying income through driving passengers to a designated location has potential to be both rewarding and profitable. Remember to keep track of expenses and enjoy the ride!
By Susan Amsler August 23, 2016
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