By JOHN KUO
Auto insurance? Health care? Candy? For rideshare drivers, figuring out what you can deduct on your taxes can be confusing.
At Credit Karma, we want to help make tax season a breeze. Deductions can reduce your tax burden, so dig in to learn which forms you need, how to fill them out and how to maximize your savings.
Where do I file my deductions?
As a rideshare driver, you're likely considered a self-employed independent contractor -- not an employee. This means that the rideshare company doesn't withhold federal or state income taxes or payroll taxes from its payments to you, so it's your sole responsibility to calculate what you owe to Uncle Sam. Depending on how much you've earned over the past year, you may need to report your income on your Schedule C using a 1099 form or information from your driver dashboard.
1099-MISC or 1099-K
Both Uber and Lyft send 1099s to qualified drivers, though the qualifying criteria differs between the two companies.
Uber will voluntarily send a 1099-K to every driver who makes at least one trip, so expect to receive one even if you drive infrequently.
Lyft, on the other hand, will only send 1099-Ks to drivers who have earned at least $600 in gross ride receipts from passengers in the last year (they'll send a 1099-MISC if you earned at least $600 in other ways, such as referral bonuses, in the last year). If you earned less than $600 from Lyft, you'll have to use the information from your Lyft driver dashboard to fill out your Schedule C.
Schedule C is an attachment to your Form 1040. It allows you to report your profits or losses as a self-employed worker. It's also where you'll list the majority of your expenses and deductions. If you report a net profit from self-employment, you can qualify for a deduction for medical, dental, vision or long-term care insurance premiums that you pay for yourself, your spouse and your dependents.
What can I deduct?
There are two ways to deduct car costs. You can either choose to deduct costs using the actual expense method or the IRS' standard mileage rate.
If you want to use the standard mileage rate, you'll have to use it in the first year the car is available for use in your business. As long as you own your car, you can switch to actual expenses in subsequent years, but be aware that this doesn't work both ways -- you can't switch from the actual expense method in year one to standard mileage the next.
Standard mileage rate
Some Uber and Lyft drivers prefer to use the standard mileage rate because it helps to approximate their expenses. This may be a good option for you if, instead of meticulously tracking all of your expenses, you find it easier to just track the number of miles you drove for work. This figure can include miles driven with passengers as well as miles driven between rides that are not of a personal nature, like running to pick up your dry cleaning between rides.
It only takes a simple calculation to determine your mileage deduction. Just use the single standard rate -- 54 cents per mile for 2016 -- and multiply it by the number of miles you drove for work.
Keep in mind that the standard mileage rate is based on an annual study of the costs of operating a vehicle, and it's meant to account not only for miles driven, but for gas, oil changes, repairs, tires, insurance, registration fees, licenses and depreciation or lease payments. If you use the standard mileage rate, you won't be able to deduct those expenses separately on your Schedule C. You will, however, be free to deduct other, non-maintenance business-related expenses such as tolls and parking fees.
Actual expense method
The actual expense method allows you to deduct each expense of running your rideshare business instead of using the standard rate. You'll deduct actual expenses such as gas, repairs, oil, insurance, and depreciation costs or lease payments.
This method takes solid bookkeeping, so you'll have to keep your receipts. After determining your expenses and how many miles you drove during the year, you'll deduct expenses that relate to the portion of miles you drove for business (that money you spent on gas for road trips or grocery shopping isn't deductible).
Keep in mind that it's difficult to determine whether you should choose actual expenses or standard mileage without detailed calculations. If you're unsure of which method may benefit you more, it may be worth it to consult a tax professional.
In addition to mileage and car expenses, the IRS allows you to deduct other expenses on your Schedule C. You can deduct business expenses such as parking, tolls and even cell phone bills.
However, you'll have to exercise some judgement in determining whether an expense is actually business-related. Unless you use your car for business 100 percent of the time, you'll only be able to deduct the percentage of costs directly associated with its use for business.
In the chart below, you'll find some common deductions for rideshare drivers. All deductions can be made in addition to standard mileage and actual expense deductions unless explicitly stated.
|Category||Deductible?||Details||Where to deduct|
|Bank fees||Yes||Checking account fees, credit card fees, ATM fees and other banking fees related to your business are deductible because you're considered a self-employed worker.||Schedule C - Part V|
|Car cleaning and car washes||Maybe||You'll only be able to deduct car cleaning and car washes if you use the actual expense method. Regardless of your mileage deduction method, you'll be able to deduct deep cleans and cleaning supplies used in connection with your business.||Schedule C - Part II, Line 9|
|Car depreciation||Maybe||If you bought your car in the past year (in 2016 for your 2016 tax returns), consider using the Section 179 deduction, which allows you to depreciate your car at an accelerated rate. You'll need to use the actual expenses method for this. See the IRS website for more on how to calculate car depreciation.||Schedule C - Part II - Line 13|
|Car insurance||Maybe||Car insurance is deductible if you use the actual expenses method. You can deduct only the costs associated with the percentage the car was used for business.||Schedule C - Part II - Line 9|
|Car lease payments||Maybe||Car lease payments are deductible if you use the actual expenses method. You can deduct the portion of each lease payment that is for the use of the vehicle in your business.||Schedule C - Part II - Line 20a|
|Car loan interest||Yes||Even if you use the standard mileage deduction, you can deduct car loan interest. You can deduct a percentage of your loan interest based on your business use.||Schedule C - Part II - Line 16b|
|Car repairs||Maybe||Repairs are only deductible if you use the actual expenses method.||Schedule C - Part II - Line 9|
|Cellphone||Yes||You need your cell phone to use the rideshare app. You may be able to deduct the full price of the phone, but only if you're taking the deduction in the same year you bought the phone.||Schedule C - Part II - Line 13|
|Cellphone data||Yes||Rideshare apps can use a lot of data. You can take deductions based on the portion of business use.||Schedule C - Part V|
|Dashboard camera||Yes||Dash cams can help keep you and your passengers safe. As long as it's used purely for business, you can deduct or depreciate your dash cam.||Schedule C - Part II - Line 13|
|Gas||Maybe||Gas is only deductible if you use the actual expenses method.||Schedule C - Part II - Line 9|
|Health insurance premiums||Maybe||You can deduct your health insurance premiums as long as you meet certain criteria. First, you must claim a profit. Second, you must not be eligible for employer-based health care.||Form 1040 - Line 29|
|Inspections and background checks||Yes||Any payments made for background checks and vehicle inspections required by Uber and Lyft qualify as necessary business expenses.||Schedule C - Part V|
|Oil changes||Maybe||Oil changes are only deductible if you use the actual expenses method.||Schedule C - Part II - Line 9|
|Roadside assistance||Yes||AAA and other roadside assistance programs are deductible based on the percentage of business use.||Schedule C - Part II - Line 9|
|Self-employment taxes||Partial||Employers normally split Social Security and Medicare (FICA) contributions with their employees. Self-employed workers must pay the whole amount, but can take a deduction for one half.||Form 1040 - Line 27|
|Snacks and beverages||Yes||Rideshare drivers often offer their passengers water and candy. As long as your snacks are exclusively for passengers, you can deduct them.||Schedule C - Part II - Line 22|
|Tolls and parking fees||Yes||You can deduct work-related tolls and parking fees.||Schedule C - Part V|
Besides the items listed above, you might be able to take other deductions, for items such as car mats and air fresheners, so long as you're using them for business.
To qualify as a business expense, the expense must be both ordinary ("common and accepted in your trade or business") and necessary ("helpful and appropriate for your trade or business").
Calculating your taxes alone can be difficult, especially as a self-employed worker. Using Credit Karma Tax to calculate your deductions can save you time and money, though you may also want to consider reaching out to a tax professional if you need additional clarity.
About the Author: John Kuo is a personal finance writer living in Northern California. He writes about mortgages, small businesses and taxes. His work has been featured in numerous outlets such as The Washington Post and The Wall Street Journal. In his free time, he likes to play bocce ball and paint.
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