The business use of your car can be one of the largest tax deduction you can take to reduce your business income. This is a big, big deal. Why two “bigs”? Because your business income is used to calculate two taxes: your personal income tax and your self-employment tax (the amount you pay into Social Security and Medicare as the “owner” of your rideshare business). Maximizing your deduction for the business use of your car will help you minimize these taxes.However, when you multiply the driver’s 30,000 miles by the IRS’s 2018 mileage rate of 54.5 cents per mile, the result is a whopping $16,350 (30,000 x .545 = $16,350). In this example, the driver is able to deduct $7,875 more by using the Standard Mileage method than by using the Actual Expenses method ($16,350 compared to $8,475). As these examples demonstrate, the two methods can yield vastly different results. Be sure to keep all your receipts so you can calculate the deduction both ways and then choose the method that benefits you the most. Also, if you want to us the standard mileage rate, you must choose it in the first year you use the car for business. In later years you can choose to use the standard mileage rate or switch to actual expenses.
The Actual Expenses methodThe Actual Expenses method is based on the expenses you actually incur in the operation of your vehicle. It includes things like:
- gas purchases
- oil changes
- tire purchases
- car washes
- and even vehicle depreciation
- For example, if your Yearly Stats show that you drove 5,000 driver mode miles and your odometer indicates you drove 10,000 miles for the year, divide 5,000 by 10,000.
- The result is 0.5, or 50%. This is the percentage of your vehicle’s business use.
- For example, if your actual expenses were $9,500, you would multiply that figure by 50 percent.
- Your deduction would be $4,750 ($9,500 x .50 = $4,750).
- $1,000 gas
- $1,500 insurance
- $6,000 lease payments
- $400 repairs
- $100 oil
- $500 car washes
Standard Mileage methodThe second method you can use to compute the business use of your car is called Standard Mileage. You should still track both your personal and business miles but you will only use the business portion to calculate your deduction. As mentioned above, Lyft does this for you on the Lyft Driver Dashboard and on the Yearly Stats sheet. Your miles are shown under “Drive mode miles.” In the example above, the driver logged 5,000 driver mode miles. Add these miles to any additional business miles to get your total business miles. To compute the deduction for business use of your car using Standard Mileage method, simply multiply your business miles by the amount per mile allotted by the IRS.
- For tax year 2018, that amount is 54.5 cents per mile. In the example above, the deduction turns out to be $2,725 (5,000 miles x $.545 = $2,725).
- $4,000 gas
- $3,160 depreciation
- $1,500 insurance
- $1,200 repairs
- $190 oil
- $500 tires
- $750 car washes
Just a reminderAs important as your vehicle expenses are for reducing your tax bill, they are not your only business deductions. The form you’ll use to calculate your net business income, Schedule C, Profit or Loss From Business, has lines for several types of business expenses. Common expenses for a ridesharing business include:
- a phone
- a wireless plan
- passenger refreshments
- parking fees
- and tolls
- For example, if you use the same wireless plan for both your personal phone use and your business phone use, you must calculate how much of your use applies to your business.
- You can deduct only that portion of your bill from your business income.