I have recently written about helpful apps for Uber & Lyft drivers. They range from navigation, to towing, to mileage tracking and to filing taxes. It is a couple of months before tax filing season. Most drivers received their 1099s and should start gathering documents in order to maximize their deductions.
As a self-employed (IC) worker, tax deductions for business expenses are the best way to prepare an accurate tax return and receive the largest possible rebate. You can deduct common driving expenses, including fees and tolls that Uber and Lyft take out of your pay. However, your biggest tax deductions will be costs related to your car. You may also want to deduct other expenses like snacks and water for passengers, USB chargers/cables and monthly cell phone bills. If you don’t take these deductions, more of your income will be subject to both income and self-employment taxes.
Make sure to track tax deductions as you go, it is much harder to recreate records later! Compile a list of these tax deductions (with receipts) and a mileage log so you’re prepared to file. Tracking business expenses can also help you determine whether your driving is profitable.
Here are some tips to help you prepare your tax deductions for filing:
I use the Standard Mileage Deduction for tax filing purposes.
Working as a rideshare or delivery driver has a lot of advantages such as Flexibility and Freedom. You get to set your own schedule, adjust your work hours based on how much you want to earn, although recently the pay for most app based gig jobs is nothing to brag about. Most importantly, you never have to deal with mean bosses or unpleasant co-workers. It sometimes can feel like a dream job if you’ve never had the freedom that self-employed IC status may represent.
With this great freedom and flexibility comes a new set of responsibilities. Ultimately, you are running a small business, you have to worry about things like managing your operating costs, providing top customer service, setting up your own retirement plan, buying your own health insurance and paying your self-employment taxes. I want to focus on a crucial method for reducing your business taxes, MILEAGE DEDUCTION!
It involves tracking how many miles you drive for Uber, Lyft, Postmates, or whatever other platform you work for. This way, you can report the mileage at tax time, claim the correct deduction, and reduce the amount of money you may owe the IRS. It is also at this time of the year that you may discover if working in the app based gig economy is a profitable endeavor for you, numbers don't lie!
If you’re a new rideshare driver or delivery driver, you may have never thought about keeping track of how many miles you drive. Aside from an occasional glance at the odometer to see if you’re due for an oil change, most people don’t pay much attention to how many miles they drive on a daily basis. As an Uber, Lyft, DoorDash and Postmates driver or anyone else who drives for business, you absolutely should keep track of the number of miles you drive. As an IC (independent contractor), the company you work for does not reimburse you for using your personal vehicle. All the money you spend on gas, maintenance, car payments, and insurance comes out of your own pocket. This can cause a financial sting when you’re first getting used to it, but there is a silver lining.
Although you don’t get reimbursed for the miles you drive by the company you work for, the IRS (Internal Revenue Service) does allow you to write your driving costs off as a business expense. As a rideshare or other IC driver, there are some problems with this method. The main issue is that, since you’re using your personal vehicle, it’s difficult to say what percentage of the above expenses come from driving your car for business use vs. driving it for personal use.
For instance, let’s say that you drive part time for Uber, a few hours after work each day to make extra money. Doing this obviously increases the amount of gas you use and the frequency with which you have to get oil changes and other costly maintenance. However, since you also use your car to commute to your day job and run errands, it is difficult to say what percentage of your car expenses come from driving for Uber. It is possible to figure it out, but it requires very detailed record keeping. Even then, you run the risk of making a mistake, you don’t want to commit an error while filing taxes with the IRS.
Fortunately, recognizing the complexity of keeping track of your actual costs when using your vehicle, the IRS has a simpler method you can use. It’s called the standard mileage rate deduction and it makes things a lot simpler. Instead of having to keep track of dozens of expenses, you only have to track the number of miles you drive for business. To receive your deduction, you just multiply the number of business miles you drove by the IRS standard mileage rate. For the 2020 tax year, the business mileage rate is 57.5 cents per mile.
If discussions of standard deductions, depreciation methods, mileage tracking, IRS mileage rates, and business expense tracking makes your head spin, don’t be concerned. You don’t have to be a math genius, tax lawyer, or a CPA to track mileage like a professional, there are apps for that on both the Android and IOS platforms.
To track your mileage, all you really need is a smartphone and the right mileage tracking app. If you’re doing any kind of app based gig work these days that involves driving, you already have the smartphone. So the next issue is choosing the right app for the job. Let’s first look at some general features to look for when choosing a mileage tracker.
First, you want something that doesn’t use lots of battery power and doesn’t take up excessive space on your phone. To track your mileage, the app will need to use your phone’s locations services (GPS function). Next, you want an app that’s easy to use. This seems like an obvious consideration, but it’s easy to get sucked in by advanced features and detailed reports, only to find yourself fiddling with dozens of options just to get the app started at the beginning of your shift. Finally, you want to choose an app that provides accurate, IRS-compliant data. In theory, tracking mileage using an app is simple. Navigation apps have been doing this for a while but some apps still accomplish it better than others. A good test is to set your car’s trip odometer, turn on the app, and then drive a short distance. Compare the app’s mileage to your odometer to determine accuracy. There might be very minor variations (fractions of a mile if your app is that accurate), but there shouldn’t be any large differences.
All the apps in this section are available for both Android and IOS operating systems.
SherpaShare is not just a mileage tracking app. It touts itself as the ultimate rideshare driver assistant, including financial management tools, exclusive discounts and help in finding the most lucrative locations to drive. SherpaShare features automatic mileage tracking. Once you’ve enabled the app, it will run in the background and automatically track miles each time you drive. All you have to do is review your mileage log and categorize each trip as either “Business” or “Personal.” The only downside to SherpaShare is that it doesn’t have a free version. The app costs $5.99 per month, though you can try it out free for two weeks to see if it’s right for you.
Triplog both a mileage tracker and expense tracking tool. It’s meant for both independent contractors like Uber and Lyft drivers as well as for employees who need to track their mileage expenses so that their employer can reimburse them. The basic version of TripLog is free. It allows you to track an unlimited number of trips, calculate fuel economy, and even track other expenses. The only downside to the free version is that it does not include automatic mileage tracking. You have to manually enable the tracking feature and remember to turn it off at the end of your shift. To get automatic mileage tracking using Bluetooth, you have to pay $2 per month.
Hurdlr is a business expense tracker and mileage tracking tool. Okay, but so are all the other apps on this list. What makes Hurdlr special? The main thing that sets it apart is its ability to integrate with your Uber, Lyft, Postmates, Instacart, Lyft, and Uber Eats accounts. It can pull your income data from each and show you tax estimates. This tax calculator feature is something that other apps just can’t match. On top of all this, Hurdlr is free. That being said, the free version does lack some helpful features like automatic mileage tracking. To get the auto-track function, you’ll need to pay $7.99 per month for the Premium version.
MileIQ is owned by Microsoft and it comes free with Office 365 Business Premium subscriptions. It also lets you sort between “Business Drives” and “Personal Drives.” The free version of MileIQ limits the number of trips you can automatically track to 40 per month. This is better than the 30 per month that the free version of Everlance offers, but it’s still not going to be enough for frequent rideshare or delivery drivers. To get unlimited automatic mileage logging, you’ll need to pay $5.99 per month for the Premium version.
Some people don’t know that the mileage recorded for trips relating to business purposes is deductible. But in order to claim mileage as a deduction, you will need to keep a record of all expenses and mileage used on the job. If you have not recorded any mileage but still want a deduction, what you can do is write a statement that is sufficient and able to support any evidence you might have.
Ask for mileage records from any app based company you work for!
Companies like Uber and Lyft typically have the records needed to estimate your business mileage. The catch is that these platforms keep tabs only for miles driven when there’s a passenger onboard. They will not include the situations when you’re driving between trips or going to customers to pick them up. These trips are business miles, but you cannot get a deduction because there is no evidence. This on-trip log of your mileage may be valuable to you, but keep in mind that it is the minimum of your deductible mileage. You’re leaving money on the table since some of your actual miles are not recorded.
Check Your Receipts
If you took your car in for maintenance or saved the receipts from the gas station, you will want to keep the records for reference so that you can figure out your total mileage. These might be able to help you add to the record. With a little math, you can figure out what your actual mileage is. If you are not one to keep receipts, maybe you can check your bank statements to see how much you spent on gas and when you spent it, as well as where. This will be a good way to have some sort of record, but if not, it will at least jog your memory of the event.
Look at Your Odometer Readings
Look at your odometer now and before your trips. You may be able to figure out the mileage through current and past readings. If you did take the car in for maintenance, the repair shop might have recorded the reading on the odometer before repairs. Maybe you got your oil changed. This could also be helpful because whenever you take your car in for repairs or checks, they will record the mileage and put it on the receipt. If it’s not on the receipt itself or you misplaced it, you can call up your repair shop and ask if they have the odometer reading on record. You may be able to get a range or approximate number for what your actual deductible mileage is.
Use Google Maps
If you can remember the locations of all the places that you had to go, you can always use the mileage on Google Maps to calculate the total amount of miles you've driven. If you are connected to Google, you might have your location history set on your email. Through this, you can see where you have been and what days you were there. This is a great way to know the exact locations as it will be listed out for you.
Which miles can be deducted?
Not every mile counts as a tax deduction. The following are eligible for tax deductions:
The first drive of the day, from your home to the location where you wait for passengers, can not be deducted for business mileage. Likewise, your last ride commuting home can not be deducted. These miles are considered commuting miles, which are not deductible. In addition, any driving done for personal reasons during the day (picking up lunch, running an errand), can not be deducted even if they are done between giving rides.
Do I need to track my miles separately for Uber and Lyft?
No, there’s really no need to do this. From the perspective of the IRS, all your various independent contractor jobs that involve driving and income streams fall under the umbrella of one business. All your mileage expenses, then, apply to your self-employment taxes, and there’s no need to track them as if they were for separate businesses.
Is the cost of my mileage tracking app tax deductible?
Most likely, yes, but check with your CPA or tax preparer! The cost of software or apps that you use for your business is a deductible expense.
Does using a mileage tracking app protect me from an IRS audit?
There is no way to guarantee protection against an audit, but using a mileage tracking app and keeping detailed records will help decrease the chance from IRS audits. However, if you do get audited, the detailed records in the mileage tracking app will help you prove that all your deductions comply with the law.