Working as a rideshare driver for such companies as Lyft or Uber can be a great way to earn extra cash as a side hustle. In addition to making your own hours (and quick bucks), being a rideshare driver also comes with an extra benefit that’s easy to overlook: tax deductions for your own car.
Filing Taxes as an Independent Contractor
Holding down a side hustle like rideshare driver renders you “self-employed” in the eyes of the IRS, allowing you to deduct business expenses when you file come tax season. A major business expense when you’re a professional driver? Your own car, portions of which you can write off, thereby reducing your taxable income and owing less to the federal government on April 15, per Tax Outreach.
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What You Can Deduct from Your Car
The IRS allows car-reliant independent contractors two different deduction methods related to their primary vehicles.
The first method: the standard mileage deduction. With it, independent contractors multiply the IRS mileage rate (currently $0.70 per mile) against their accrued business miles (the miles driven when on the clock). This set rate is also covers additional fees such as depreciation and maintenance/repair. The only costs that don’t fall under the standard mileage deduction (and have to be deducted separately) are tolls and parking fees.
The second, less common method: deduct every single auto expense individually, rather than folding them all under the standard mileage deduction. With this method, you must note every driving expense: auto insurance, gas costs and mileage, value depreciation, and maintenance/repair. Be warned: this method requires strict record-keeping, hence why most contractors opt for the standard deduction instead.
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Regardless of which method you use, rideshare drivers can also deduct such additional items as snacks or phone chargers purchased for passenger use, your phone bill (most rideshare drivers use their phones to accept pickups and rides), as well as any general fees applied to you by your rideshare platform.
Bottom Line
While rideshare drivers can’t deduct an entire car (even if it was purchased strictly for the side hustle), many of the additional costs of car ownership can be deducted come tax-time. Gas, conveniences for passengers, maintenance, even your phone bill — all can be written off when your taxes are due.
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This article originally appeared on GOBankingRates.com: Tax Tips: How to Use Your Side Hustle to Write Off Car Fees
