Not knowing your Uber driver tax deductions can make you lose thousands of dollars this tax season. Are you deducting ALL the mileage you are allowed to write off? Do you know that you can write off your car wash or the new phone charger you bought last week?
Don’t make the mistake of not knowing EVERYTHING you need to know to about your tax deductions as an Uber driver.
Standard Mileage versus Actual Expenses
You can apply either the Standard Mileage or Actual Expenses when you are taking your tax deductions for your Uber business.
Remember, you cannot double dip. So you will have to compute both ways to see which is the more economical option that will save you more money.
The published 2018 fixed rate is at $0.45 per mile driven. The 2019 rate is fixed at 58 cents. However, the fixed rate changes every year and depending on the market.
Calculating Standard Mileage
All the miles you’ve driven from picking up your first passenger to dropping off your last passenger, and the waiting in between, are considered as deductible miles. Your Uber statement includes the actual miles driven, so use that for reference when computing using this deduction method.
Let’s say your total miles for this tax year totals 12,000 miles. To calculate your Standard Mileage deduction, multiply by the rate 54 cents.
12,000 miles (total miles driven for 2018) x $0.54 (2018 fixed rate) = $5,400 deductiblex
Calculating Actual Expenses
Using actual expenses, on the other hand, require a little more time and effort.
First, keep all the necessary receipts you get from all your various business expenses to maximize your Uber tax deductions. If not, you will miss out on some eligible deductions and end up deducting less.
License and registration fees
- You can deduct a portion of your registration fees depending on your state. Generally, your state will use the actual vehicle value. This is taxed annually even though your payments aren’t, and you must have paid these taxes for the year.
Gas and oil change
- All your gas expenses can be deducted as long as these are business-related car rides. For example, if you use your car 80% of the time for Uber and 20% of the time for personal use, you can deduct 80% of your total gas expense for the year.
- Like the gas expense deduction, you can also deduct a percentage of your lease payment proportional to your business use. This means you can deduct 80% of your lease payment for the example cited above.
Car loan interest rate
- If you used an auto loan to purchase the vehicle, you would use for your Uber business.
- Also, you can deduct a percentage of the interest on your car mortgage. If 80% of your total car use is for business, deduct 80% of the interest from your tax bill.
You can deduct the value of your car through depreciation. It can be calculated in different ways, depending on how it is spread over the 5-year period.
- Modified Accelerated Cost Recovery System – this is usually the default method of the IRS and is a combination of different methods
- Equal Expensing – the cost of the car is divided by 5 years and the amount can be applied for tax deductions
- 150% or 200% Declining Method – you can use either of the two methods when you recorded a higher value of depreciation at the beginning of the 5-year period then you decide to switch to Straight Line method when it gives a better tax deduction
- Your insurance is essential to your ride-sharing business, and therefore this is deductible from your taxes. Just like the preceding items, you can only use an applicable percentage as a tax write-off.
The better Uber tax write-off
Your computation for actual expenses can end up being higher than standard mileage depending on the eligible expenses you incurred and the receipts you managed to keep. If you are confused about which tax form to use, read our step-by-step guide.
To maximize your write-off using Actual Expenses as tax deductions, do the following:
- Keep track of all small and big business expenses at the very beginning of your ride-sharing business.
- Next, remember to keep every receipt you get from your business transactions. Some uber drivers opt to use the Standard Mileage deduction because it’s easier and more straightforward.
Aside from the actual expenses enumerated above, you will also need to keep receipts from other common operating expenses. These can be deducted from your tax returns regardless of whether you use the Standard Mileage or Actual Expenses method.
Common Operating Expenses for Uber Drivers
First off, there are several other tax deductions you should take note of in order to get the largest tax deduction possible.
Your “ordinary and necessary expenses” for the operation of your business are partially or fully deductible from your tax bill.
The IRS defines these expenses as:
- an ordinary expense is one that is common and accepted in your industry
- a necessary expense is one that is helpful and appropriate for your trade or business
- an expense does not have to be indispensable to be considered necessary
Of course, organize your record-keeping, but it’s definitely worth the extra dollars off your tax bill.
You can go for the Standard Mileage Deduction and just apply these additional deductible items, or you can go all-out and keep every single receipt and record every single expense incurred for the business.
Other expenses that you can deduct on top of your chosen method:
Food and drinks
- Any food and drinks expenses you incurred during Uber rides or meetings with potential drivers are deductible up to 50% of the total amount. this also goes for any F&B expenses during any official Uber business. You can also include costs of water, candies, and other snacks that you provide for your Uber passengers.
Car repairs, oil change, and car wash
- Necessary expenses on car maintenance are deductible, considering things such as car wash is essential to keep the business healthy and the customers happy. All the necessary expenses for maintaining your vehicle is deductible.
Mobile phones and chargers
- A smartphone is required to use the Uber app and also a data plan. You can deduct a partial cost of it if you bought the for personal use. But you can deduct its full cost if you purchased it purely for business purposes. Also, if you purchase a car charger or wire to lend to your Uber riders, you can list this as a deductible expense.
Car parts and accessories
- Floor mats, tires, tire inflator and pressure gauge, car tool kits, and portable battery jump pack are some of the accessories that you can deduct.
- Use tax incentives you can maximize if you are using an eligible electric or hybrid vehicle.
Parking and toll fees, garage rent
- All these car-related fees are deductible since they are part of the normal day-to-day operations of your grab-sharing business. Take note that only toll fees paid for Uber rides are deductible. Toll fees are also usually indicated on the tax summary provided by Uber.
- Calculate and deduct the entire amount if you use an AAA membership or any other Roadside Assistance Plans for your business.
Other fees not deducted by Uber
- Deduct credit card fees and paypal fees that are deducted from you or charged to you for any business-related transaction.
Another simple solution to all your Uber tax dilemmas
If you find this guide helpful but you still need extra help, consider using a reliable tax software. There are many tax preparation software out there that can help you do the job.
Locustax is one of the easiest to use that won’t break the bank. You don’t need to be tech-savvy to know how to use the software, and you’ll definitely be spending a lot less as opposed to hiring your own tax professional.
Wrapping This Up
- First, deduct all your business-related expenses from your tax bill.
- List and organize the receipts you have with you.
- Next, calculate both ways so you know which method will yield better returns.
- Also, list all applicable common operating expenses.
- Finally, choose your deduction method.
- Check our guide for simplified filing.