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This article has been updated for the 2018 tax year.
Gas, sure. Mileage, maybe. Candy, possibly?
You might wonder if you can deduct these thing if you’re a rideshare driver for a company like Uber or Lyft. Great news: you’re self-employed and may qualify to deduct a number of expenses related to your work. But which ones? And what forms should you use?
Deductions can reduce your tax burden, so it’s important to know which forms you need, how to fill them out and how to maximize your savings. Here are some tips that could help.
Self-employed or employee?
If you participate in the sharing economy by providing car rides booked through an online platform, the IRS generally considers you an independent contractor. You can be considered an independent contractor whether your ridesharing job is your full-time gig or something you do on the side.
As a self-employed individual, you’ll be responsible for paying your own taxes, rather than relying on an employer to withhold them from your paycheck.
The good news is that some, or all, of the expenses related to your rideshare driving may be deductible.
Forms to know
The company you drive for may issue you a 1099-MISC. This IRS form will show how much the company paid you during the tax year.
The IRS requires companies to issue 1099s to independent contractors to whom they’ve paid $600 or more in year. If the company paid you less than $600, they may not send you a 1099, so it’s important to keep your own records of your rideshare income.
When you’re ready to file your Form 1040, you’ll need to complete and attach Schedule C. That’s the form on which you can report your profits or losses as a self-employed worker. It’s also where you’ll list most of your expenses and deductions.
You’ll also need to file Schedule SE, where you’ll calculate and report your self-employment tax.
When you’re someone’s employee, your employer typically withholds your share of your Social Security and Medicare taxes from your paycheck, along with your federal income tax. When you’re self-employed, you’re responsible for paying those taxes yourself.
Deductions you may be able to take
Since you use your car for your business, you can deduct car expenses. There are two ways to do that. You can either deduct the actual expenses of operating your car, or take the standard mileage rate deduction.
Despite its name, the standard mileage rate doesn’t just cover mileage. It also takes into account fixed and variable costs of operating an automobile, and it’s based on an annual study of those costs.
For 2018, the standard mileage rate is 54.5 cents per mile.
If you find it easier to track the number of miles you drove for work, rather than tracking all your expenses, the standard mileage rate might be a good option for you.
Remember, though, if you choose to take the standard mileage rate, you’ll have to start using it the first year you use it in your work as a rideshare driver.
You can switch to actual expenses later, but if you start out using the actual expense method, you can’t switch to standard mileage in subsequent years.
When you take the standard mileage rate deduction, you can’t deduct most of your actual expenses, like depreciation, lease payments, gas, oil, repairs, insurance, licensing, etc., as well.
If you want to deduct those items, you’ll need to use the actual expense method.
Actual expenses you may be able to deduct using this method include the following:
- Lease payments
- Registration fees
- Garage rent
You’ll need to keep good records if you opt for the actual expense method. If you qualify to use either method, it may pay to calculate your deductions using both methods to see which will give you the larger deduction.
Because you’re self-employed, you can also deduct business expenses on your Schedule C, including parking, tolls and even cellphone bills.
However, you can only deduct the portion of these expenses that are actually business-related.
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 can be deductible when you’re considered a self-employed worker.||Schedule C — Part V|
|Car cleaning & 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 can 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 2018 for your 2018 tax returns), you may use the Section 179 deduction, which allows you to depreciate your car at an accelerated rate. You’ll need to use the actual expense 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 can be deductible if you use the actual expense 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 can be deductible if you use the actual expense 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||Certain repairs can be deductible only if you use the actual expense 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||Maybe||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||Certain gas expenses can be deductible only if you use the actual expense 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 healthcare.||Form 1040 — Line 29|
|Inspections & background checks||Yes||Payments made for background checks and vehicle inspections required by Uber and Lyft can qualify as necessary business expenses.||Schedule C — Part V|
|Oil changes||Maybe||Oil changes can be deductible only if you use the actual expense method.||Schedule C — Part II, Line 9|
|Roadside assistance||Yes||AAA and other roadside assistance programs can be 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 & 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 & parking fees||Yes||You can deduct work-related tolls and parking fees.||Schedule C — Part V|
In addition to the items listed above, you might be able to take other deductions, for items such as car mats and air fresheners, as 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. Credit Karma Tax® can help you file your taxes as a self-employed worker, and identify deductions you may be eligible for as a rideshare driver.