Vehicle Deductions for Uber, Lyft, and Self-Employed Drivers

With so many people jumping into the self-employed ridesharing waters, plenty of folks have questions about how to handle their tax returns each year. Most drivers understand they have to track and report their business mileage, but fewer understand how to truly maximize their deductions by calculating the actual costs of their vehicle expenses year over year.

Here’s a checklist of must-have information to cover all the bases for both standard mileage deductions and actual auto deductions come tax season.

Keep a Mileage Log

As we’ve discussed in previous articles, all self-employed drivers are responsible for logging their business trip mileage. Make sure you have, at the minimum, the following information in each of your logs:

• Date of trips
• Start and end points
• Total trip mileage
• Name of business/client/customer
• Business purpose

While this is a good starting point for the up-and- coming Uber driver hoping to minimize his tax liability or increase his refund, mileage isn’t the only thing that can be written off. As most self-employed drivers use their personal vehicles for work, many vehicle expenses and costs can be written off as well.

Actual Car Expenses

Those who are meticulous about tracking each of their auto expenses may find that their available tax deductions far exceed what is offered by the IRS standard rate (set at 53.5c per mile in 2017). This is known as the “actual expense” method of deduction. Keep these costs and considerations in mind as you log your business mileage:

• Vehicle Depreciation – When using the actual expenses deduction method, the IRS allows you to write off a certain amount of depreciation each year to help recover your cost. This process is complex, requiring drivers to understand the cost basis of their vehicles, the date the car entered service, and the different methods of depreciation available. See the IRS deduction guidelines for more information.
• Gas and Oil – For business-related trips, gas costs can be written off commensurate with your business use.
• Tags/Licenses – Much like loan interest, the cost of tags and licenses may be deducted commensurately with how the vehicle is used.
• Repairs and Maintenance – Maintenance on your personal vehicle is deductible commensurate with use, as long as you have the paperwork and necessary documentation to justify it. This would include car washes and detailing.
• Car Insurance – Your car insurance costs can also be deducted commensurately with use.

This next batch can be written off when using the standard mileage rates as well.

• Auto Loan Interest – Interest on car loans is deductible commensurate with your use of the vehicle. For example, if your car is used 50 percent of the time for your Uber or Lyft work, you may deduct 50 percent of the loan interest paid on your taxes.
• Personal Property Taxes – Taxes paid to your state, county and/or locale based upon value at time of purchase or annually as the case may be.
• Parking Fees – Parking fees at your regular location of business are considered nondeductible commuting expenses (i.e. place of employment if you are a W-2 employee or your regular office location if you are self-employed and work outside of your home). However, if you pay to park when visiting a customer or client, that fee is deductible.
• Tolls – Any toll fees you incur are deductible.

Maximize Your Deductions

And to top it all off, you’ll need a defensible system of regular mileage reporting, such as a smartphone app. The IRS doesn’t appreciate drivers who try to produce a years’ worth of reports all at once near tax time. For a simple and smooth tax write-off, log each of these expenses as they occur, such as with MileageLog.

It’s also important to note that the actual expenses method of deduction won’t necessarily produce a stronger return. The IRS standard rate can be considered the “average” of all these variables; the unique circumstances of your own job and vehicle will determine your most advantageous option when filing your return. However, drivers hoping to maximize their returns must track and record their actual car expenses if they hope to see how it stacks up to the standard mileage rate offered by the IRS.