Deduction Considerations for Self-Employed Workers

With the rise of ridesharing services such as Uber and Lyft, there’s been a marked increase in the number of employees who are considered “self-employed” by the IRS. Being self-employed, whether through a rideshare company or through any enterprise that allows you to work as an independent contractor means that you’re responsible for tracking your business-related expenses for IRS review. This can be tricky, as the IRS has plenty of rules about what mileage is deductible and what expenses independent contractors can report on their returns for later reimbursement. This isn’t a bad thing; Independent contractors who have a structured system of logging their business-related mileage can apply for substantial deductions. However, they must know how to do it correctly.

Document Your Auto Mileage Carefully

Careful documentation is always necessary when applying for deductions. This includes both total mileage covered as well as travel purpose. When documenting your business mileage, remember to include all the information the IRS will need:

Independent contractors can track this information by hand, but these days, most use mileage tracking applications to streamline the process.

Working Multiple Jobs Requiring a Car

While all mileage logged on behalf of ridesharing companies is clearly deductible, things get a bit more complicated when employees work multiple jobs.

For example, commuting mileage (defined as mileage between your main place of employment and a personal destination, such as your home) is not deductible under any circumstances. However, if you work multiple jobs, the mileage from your first job to your second job is deductible. This also applies to trips taken in between office locations. But be careful; if there comes a day when you work at your second job but not your first, the mileage taken is considered part of your daily “commuting” mileage, and is not deductible.

Self-employed workers should calculate their deductions under both methods to ensure they’re choosing the most profitable option.

Do You Work from Home?

Things also work differently for those who work out of their homes. These employees must clearly delineate the purpose of each trip in their documentation, as deductions only apply for specific business-related purposes:

Note that for self-employed workers who have a regular office to visit each day, the commuting exclusion applies—no commuting mileage to/from this location can be deducted.

Review Your Unique Mileage Usage Circumstances

As a self-employed worker, you must understand the IRS standard rate for mileage deductions and whether you’d be better off going with custom rate selection. In most cases, determining custom rates will produce the best returns, but there are plenty of variables to consider in this decision.

For example, vehicle depreciation can have a significant impact on custom mileage rates. Generally, those with older vehicles, or those who drive significant numbers of miles each month will be better off taking the IRS standard rate. The IRS contains a fixed amount for vehicle depreciation that does not take into account the value of your vehicle. Conversely, those with newer cars or those who log fewer miles will see better returns by deducting their actual expenses through custom rates.

Self-employed workers should calculate their deductions under both methods to ensure they’re choosing the most profitable option.

Self-Employed Mileage Tracking

Whether you’re part of the ridesharing industry or you’re an independent contractor operating outside the typical 9-5, self-employed workers have plenty of research to do before filing their taxes. Quality mileage tracking applications will give you the option to log each trip as it occurs, and can be the easiest way to provide a defensible paper trail of your business-related expenses come tax time.

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