One of the biggest side effects of pandemic lockdowns was the rise in some gig economy jobs—namely, things like Uber Eats and Instacart. These jobs, and other rideshare and delivery services, are very popular because of their flexibility in both time commitment and working hours.
One potential downside, however, is that filing taxes for these jobs can require a little more work, especially if you want to take advantage of all the business tax deductions available to you as a driver.
It’s always a good idea to seek out tax advice on the specifics of your tax return, although most of these tax deductions will apply to almost all drivers. Talking to a tax accountant like S.H. Block Tax Services can prepare you for what kind of expense tracking you should do throughout the year in order to get the biggest tax deductions available to you.
The Biggest Tax Deductions for Rideshare Drivers
Uber and Lyft already take their cut from your income, so it can be disheartening to see how much the IRS wants as well. By taking all the tax deductions that you can, you are able to keep more of that hard-earned money when you pay taxes. Pay special attention to the first one, since it’s the most important one on the list!
- Mileage: The IRS standard mileage deduction is used to calculate the tax-deductible expense of operating your vehicle for business purposes and is meant to cover the costs of things like gas, maintenance, and vehicle wear and tear. Uber will calculate how many miles you traveled, but you may want to use a mileage app to make sure you’re capturing your actual miles traveled. This is almost guaranteed to be your largest tax deduction, so it’s worth the effort to keep a mileage log or some other means of tracking.As an alternative to mileage, you could instead choose to deduct your actual car expenses by carefully tracking your cost of gasoline, maintenance, depreciation, and repairs. In some years the “actual expense” method might be better than taking the standard mileage deduction, though it certainly isn’t a guarantee (and a lot more work).
One additional thing to note: If this is the first year you are claiming a deduction for business use of a particular vehicle, you must use the standard mileage deduction if you wish to use standard mileage again in later years for that car. (You will be able to switch back and forth.) Otherwise, you will be required to continue using the actual expenses method.
- Expenses, fees and tax: When Uber reports your income, they report your gross income, which is a higher amount than you actually receive. They take out their commissions and fees, which are deductible, and should be listed right on the tax form you receive from them.
- Cell phone: The cost of your phone and your monthly bill are both deductible, since Uber drivers must have a phone to do their job. If you use your phone for personal purposes, then you can only deduct a portion of your mobile phone expenses. For instance, if you use your phone for Uber or Lyft 75% of the time, you can deduct 75% of your phone expenses. You can also deduct the cost of phone accessories that are needed for your job, like a phone charger and dash mount.
- Parking, tolls, etc.: Any expenses incurred while performing your job, like parking fees or road tolls, are qualified as deductible business expenses (unless they are reimbursed).
- Refreshments for passengers: Anything you purchase for your passengers, like snacks or bottled water, can be written off as business-related expenses.
- Car washes: No one wants to hop into a dirty car, so detailing and cleaning your car for your passengers’ benefit are deductible vehicle expenses.
- Subscriptions: If you pay for an app to help you track mileage, or if you pay for a subscription to something like Pandora or Spotify for a better ride experience, these costs are deductible.
- Car loan interest: If you are making payments on your car, you can deduct a portion of the interest that you pay based on the percentage of your car use for business purposes.
As you can see, Uber drivers can deduct many of the business and vehicle expenses related to driving around with paying passengers, but the key is to document these costs! If the IRS starts asking questions, you will need to prove these costs with receipts and other documentation. Keep a folder in your car for all physical receipts, or an app on your phone to track these costs so that you can file taxes without any extra headaches.
Uber Drivers and Tax Forms
Some drivers may receive a 1099-K, but other Uber drivers may receive a tax summary as their only tax form. Any income you receive over $600 must be reported to the IRS, so even if you don’t receive a 1099 you may still need to report this income on your tax return.
Uber sends a 1099-K to all drivers who make more than $20,000 per year in customer payments. Uber also sends out a 1099-NEC to any driver who makes $600 or more in referrals or other miscellaneous payments.
If they make significant income from driving, Uber drivers need to pay self-employment taxes throughout the year. Contract driving, like Uber or Lyft, means you are a self-employed worker. You may need to make estimated tax payments throughout the year, but don’t worry—during tax season everything will even out. These aren’t “extra” payments; they are just like the taxes that are withheld from the paycheck of a W-2 employee. The big difference is that you are responsible to make those payments on a regular schedule, rather than an employer.
If You Need Help with Uber Driver Tax Deductions, S.H. Block is Here
If you’re concerned about what qualifies as business expenses, or how much you should be paying in estimated tax payments, it’s time to consult a tax professional. S.H. Block Tax Services has extensive experience in helping rideshare and delivery drivers with their taxes. We can help you make sure you’re getting the tax deductions that you are qualified for, and we can walk you through your Uber tax summary and explain how each amount is used in your tax return.
Uber and Lyft tax deductions can be confusing, and it’s important that you aren’t double-dipping. For instance, if you take the mileage deduction, you can’t also claim a depreciation deduction. A tax accountant can help guide you on what you can claim and what you can’t.
If you have any questions, please contact us. We are just a phone call away. Please call us at (410) 872-8376 or fill out this form to learn more. We can help you with all your tax questions, including anything about how to file taxes as an Uber driver.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.