Driving for a rideshare app like Uber and Lyft is a great way to put income in your pocket. Whether you treat it like a side gig or your full-time job, be aware of these common errors that could spell problems at tax time.
1) Relying on Uber to keep track of your mileage
Sure, Uber’s app will keep track of the miles you drive with passengers in your vehicle. But the fact is, the IRS also allows you to claim the distance traveled to get from a drop-off location to where your next passenger is waiting. You can still rely on Uber for a portion of your business miles, but use a mile tracking app like Hurdlr as well to make sure your getting all your deductible miles counted.
2) Not keeping receipts
As a rideshare driver, there are certain expenses you can deduct in addition to mileage. If you use the actual method for calculating your business expenses, you’ll need receipts that back up your claims. If you can’t provide records, the IRS might question the expense. In that case, you could be on the hook for back taxes and penalties. If you don’t keep track of your receipts, you can always take the standard method, which allows you to deduct a flat rate of 54.5 cents per business mile for all driving-related expenses. Still, you must track your mileage closely to make sure you are getting your maximum deduction.
3) Not knowing which business expenses you can write-off
Mileage is the most obvious deduction that a rideshare driver can take. But other common operating expenses you should be deducting include your cell phone and wireless plan, tolls and parking, and memberships for roadside assistance. Have you ever wondered if you could deduct for car washes? How about those bottles of water you give your passengers? Knowing which expenses you should write-off can put money back in your wallet at tax time. For more on the common operating expenses you can deduct, read: 11 Deductions for Ride-Share Drivers
4) Not making quarterly payments
When you work as a rideshare driver for Uber and Lyft, you are technically a small business owner. That means no one else is withholding wages from your paycheck for income taxes. If driving is your side-gig and you work a second job where you filled out a W-4, you could adjust your withholdings to cover your rideshare income. If you work entirely for yourself, you are responsible for paying quarterly estimated tax. If you don’t, you could be hit with a penalty for underpayment. Read more about estimated taxes for the self-employed.
5) Deducting the same expenses twice
If you use the standard method for calculating your deduction, you should not also be deducting itemized expenses. These include things like car washes, gas, maintenance, depreciation, fees, insurance, repairs, oil, tires, registration, or lease payments. The standard method accounts for these and allows you to deduct a flat rate of 54.5 cents/mile. Writing off these individual expenses when you use the standard method is actually double-dipping. You could wind up with a big penalty from the IRS if you are caught.
This post is up to date for tax year 2018 (tax returns filed in 2019).