The information in this article is up to date for tax year 2023 (returns filed in 2024).
Ridesharing is one of the top gigs for independent contractors, with over 2 million people driving for Uber and Lyft in the U.S. alone. Whether you’re driving for some extra cash or to help make ends meet, you’ll need to treat those earnings differently than your traditional 9-5 employee income.
Use the following tax tips for ridesharing drivers to help you get the most out of tax season.
Tips for preparing to file taxes
Keep detailed records.
In order to take advantage of business-related tax deductions, you’ll need to keep careful records of your business expenses and how you use your car. For instance, you can deduct the costs of using your vehicle for work but you can’t include costs incurred during personal use. This means any miles you drive for Uber or Lyft count but that trip to the grocery store does not.
Pro Tip: Mileage apps can help you track your business-related trips so you know exactly how many miles you can count towards the Mileage Deduction.
Open a business bank account.
Mixing personal and business banking can make accounting a headache—especially come tax season. To simplify your finances, consider opening a separate business bank account to manage all your business expenses. This will make it easy to track business expenditures (such as gas or even snacks and refreshments), and provide a clear record of bank and credit statements when you go to file.
Be prepared to file quarterly taxes
If you are driving regularly for Uber or Lyft, you may be required to pay quarterly estimated taxes. Because you are self-employed, you don’t have an employer withholding taxes for you in your paychecks. This means you’ll need to pay those taxes yourself through quarterly payments. Be prepared to set aside about 30% of your earnings to cover these costs over the year.
Your quarterly taxes are calculated based on your previous year’s earnings and paid out in four equal installments in April, June, September and January of the following year.
Tax deductions for rideshare drivers
Rideshare drivers are self-employed, which means if you contract through Uber, Lyft or another rideshare service, you can deduct your driving expenses on your taxes. So what exactly qualifies as a tax deductible business expense?
If you’re a rideshare driver, here are a few expenses you can write off:
Operating Expense Deduction
These are business expenses separate from your vehicle costs. These can include
- Mileage tracking software
- Uber and Lyft fees and commissions
- Snacks for passengers
- Chargers, mounts, or other accessories
- PPE like masks or hand sanitizer
- Cell phone, including carrier charges*
*Note: You can only deduct the portion of cell phone expenses related to business use. So if you use your phone for personal and business activities, you’ll have to calculate the portion of the costs that are business-related. To simplify things, you may want to purchase a separate phone just for your ridesharing activities. That way, you can deduct the full costs associated with that phone.
To claim this deduction, record your operating expenses on Schedule C under Common Operating Expenses.
Mileage Deduction (Vehicle expenses)
The mileage deduction allows you to write off expenses related to using your vehicle for work.
You can claim the deduction by choosing the Standard Mileage Deduction or itemizing your costs under the Actual Car and Truck Expenses deduction. Most people will get a bigger deduction under the Standard Mileage deduction. This is also the easier route as itemizing your costs requires keeping detailed records that may require the assistance of an accountant.
To claim the Standard Mileage Deduction, multiply your business miles driven by $0.655 (for tax year 2023). This rate includes costs for gas, maintenance, repair, and depreciation. (The mileage rate will increase to $0.67 in 2024).
Self-Employment Tax Deduction
As an independent contractor, you are responsible for paying self-employment taxes. Self-employment taxes are the employer and employee portions of the Social Security and Medicare taxes. In a W2 job, your employer would normally cover half of those taxes. As a self-employed person, you are on the hook for 100% of the tax.
The good news is that as an independent contractor, you can apply the self-employment deduction to deduct the employer-equivalent portion of the self-employment tax. This only affects your income tax.
Gig work like rideshare driving can be a great way to earn extra income on the side. Keep more of that money in your pocket come tax time when you file with ezTaxReturn.
ezTaxReturn walks you through the filing process step by step to ensure you take advantage of every deduction available to you.
Get the biggest refund, guaranteed. File today.
The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
