* Gridwise does not provide tax, legal, or accounting advice. This material has been prepared for information purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before filing your return.
It’s March. We’re about a month away from tax time. By midnight on April 15, we all need to have our annual income taxes completed and submitted (April 15 falls on a Saturday this year, which means you have until midnight April 17, ensuring many will spend that final weekend frantically doing their taxes).
We understand. No one likes taxes, and as a self-employed gig driver, you almost invariably owe money to the government. Gridwise has joined forces with Keeper to bring you little-known facts about gig-worker taxes. Keeper helps gig workers and creator economy workers discover tax-deductible expenses. Keeper also helps gig workers file their taxes.
How Gridwise works
Let’s dive right in and answer some of the more frequently asked questions about taxes for freelance work and gig driving.
1 – Are gig drivers considered self-employed?
Absolutely. As a gig driver, you are a self-employed business owner.
Any time you get a paycheck that doesn’t have taxes deducted, you are in business for yourself and responsible for paying taxes on that income. You must complete a Schedule C (Profit or Loss from Business–Sole Proprietorship) as part of your taxes. According to a blog post from our partner Keeper, How to Handle Taxes on Side Hustle Income, this applies whether you are a full-time gig driver, or if your gig driving is a side hustle in addition to a regular job.
The other bad news is that you must pay Social Security and Medicare taxes on that side hustle income, which totals 15.3% of what you earned after deductions.
2 – What can I deduct related to my car
As a gig driver, your most significant delivery driver or rideshare tax deduction is your mileage. The IRS gives you a choice about how you can write off your car expenses: actual expenses or the standard mileage rate (sometimes referred to as the rideshare mileage deduction). Both approaches consider mileage and other auto expenses, including oil changes, tires, and repairs.
If you use actual expenses, you record all car-related expenditures, saving receipts throughout the year for every purchase. If you drive an electric vehicle, you keep the receipts for EV charging. This is a paperwork nightmare. Any car-related expense, even a burned-out taillight, is deductible. If you use your car for personal use and your gig driving, you must establish what percentage of use is for gig work and apply that portion of the expenses as a delivery or rideshare tax write-off.
Using the standard mileage rate, you record your total miles as part of your gig-driving job and write it off. This last tax year, 2022, is different than most, however. The IRS, in acknowledgement of the high gas prices, changed the rate mid-year. Write off all miles driven before July 1 at 58.5 cents per mile. After July 1, increase the rate to 62.5 cents per mile. See the Gridwise blog post, IRS 2023 Mileage Rate Increase: Good News for Gig Drivers, for a full explanation of the IRS increase in the standard mileage rate.
3 – Which method of writing off car expenses is better for Lyft and Uber driver accounting, and delivery work?
When it comes to filing taxes for Uber drivers, Lyft drivers, and delivery drivers, your best option is the standard mileage rate. For example, a driver whose gross earnings were $45,000 in 2022 easily drove 50,000 miles to earn that money. If you split that mileage evenly between the previous rate and the new rate, you come up with a tax deduction of $30,250 off your Schedule C. When you subtract that from your gross taxable income of 45,000, it drops to $14,750. That is a significantly lower tax bracket, achieved with just one deduction.
If you were to claim actual expenses, you would likely come up with a far smaller number to write off your income.
The actual expense method is best for a self-employed person who uses their car for business, but who drives far fewer miles than a rideshare driver.
4 – Is the mileage report I get at the end of the year from Uber, Lyft, or other delivery company adequate for my taxes?
The IRS will accept the report, however it reflects far fewer miles than you actually drove. You would be seriously shorting yourself. The report only details your mileage from the time you were assigned a passenger or delivery until you completed that task. Those numbers don’t accurately reflect the miles you covered while your apps were on but didn’t have an assignment. The miles you drive each shift before receiving your first passenger or delivery, between each passenger or delivery, and the drive home at the end of the shift are all tax-deductible. The Stride Health blog suggests that these extra miles can often double your deductible mileage.
How can you easily record these miles? The Gridwise Mileage Tracker is the best mileage tracker for rideshare and delivery drivers. It is a vital part of Lyft or Uber driver accounting, automatically working in the background on your cell phone and recording all your miles for tax purposes. Later, you can download the records into an Excel file (or another format) for tax preparation. For a more thorough explanation of how the mileage tracker works, check out this Gridwise video.
5 – Are any automotive-related expenses not covered in the standard mileage rate?
According to a KeeperTax.com blog post titled Ultimate Guide to Car Tax Deductions and Mileage, there are other expenses you can write off separately if you claim the standard mileage rate. These include
- parking fees
- tolls
- car washes
- DMV registration fees
6 – Can I claim the standard mileage rate on the car I rent for Uber or Lyft?
Nope. You can only claim the standard mileage rate for a car you own or lease. In the case of rental cars, the owner is the rental agency. Most rental agreements place the financial responsibility of maintenance and upkeep (tires, brakes, etc.) on the rental agency. In the case of a rental car, you will have to claim actual expenses, meaning you can only claim fuel purchases.
You can, however, claim the cost of renting the car as a deduction.
7 – Can I write off my clothes for work?
For gig drivers, clothing is a deduction you will probably have to pass on. Put simply, the IRS rule is that you can write it off if you have to wear it to get paid. The other rule is that you can only wear it for work.
In a November 2022 Gridwise blog post, A Shopper’s Guide to Being a Shipt Shopper in 2022, Gridwise introduced readers to Robert Woldhuis, who made more than $100,000 a year as a Shipt shopper. Robert’s trademark was wacky costumes, oversized glasses, and brightly colored wigs. Can Robert write those expenses off on his taxes? That’s debatable. A clear-text reading of the IRS rule would not be in his favor.
8 – Are meals tax-deductible when I am ridesharing?
According to the IRS, there are specific instances in which you can write off a meal. These include
- taking a client out to lunch
- wooing a prospective client
- A meal with a coworker, which includes a discussion of business
- meeting with a potential referral
- a networking opportunity with anyone
As a gig driver, whether you are ridesharing, or delivering food or groceries, the opportunity to have lunch with a passenger or recipient of delivered goods will likely not meet one of these requirements. You also can’t claim meals or snacks that you consume in the course of a shift.
There is a Lyft Driver Advisory Council. If you are a member of the group and you meet with a fellow member to discuss council business, such a meal could be tax deductible. Aside from that, there are few opportunities to write off a meal as a gig driver.
9 – Can I write off supplies for my car?
You can write off water, candy, and other snack purchases that you make for your passengers. This is typically done in furtherance of getting a tip or a good rating, which moves it into the area of a legitimate write-off. Do you entertain your passengers with music from Spotify or Amazon Music? That is also tax deductible. The Gridwise Expense Tracker is vital to Lyft or Uber driver accounting. This app feature keeps all your records in one place. You still need to keep your receipts in case of an audit, but Gridwise tracks the numbers and computes the totals. At tax time, all the numbers are at your fingertips. Learn more about the expense tracker function by watching this Gridwise video or checking out this article about the expense tracking features of the Gridwise app.
10 – Can I write off car payments?
You cannot write off car payments as a tax deduction for delivery or rideshare tax earnings. But you can write off the interest payment on a car loan, even if you take the standard mileage deduction. It is one of three exceptions allowed by the IRS.
Can you write off all the interest on that car loan? Probably not. Some of that driving will be for personal use. To determine the percentage of interest that you can write off, divide the miles reported from your Gridwise app by the total mileage on your car for that year. Let’s say it comes out to 55,743 miles and 82,805 miles, respectively. Divide 55,743 (the miles reported on your Gridwise app) by 82,805 (the total miles you drove for that tax year). Your deductible percentage is 67%.
11 – As a gig driver, can I claim a home office deduction or write off my home internet?
That’s a tough one. IRS rules allow you, as a freelancer, to take a deduction for a home office, but the rules require that the home is your principal place of business. If you are a gig driver, your principal place of business is your car. Aside from possibly sitting at a desk in your office analyzing a spreadsheet to see trends in your gig-driving activity, it will be difficult to sell office-in-the-home as a full-time expense. The same goes for home internet.
What if you diversify and start a blog about gig driving, or film, edit, and produce videos for posting on YouTube? Let’s add that you monetize this online activity. Now you can probably claim a home office—and you might have more money to claim on your taxes.
Gridwise can help guide you in your gig driving activities
Whatever expenses you’re tracking, keep them all in one place with Gridwise. At tax time, you’ll be able to export your income and expenses from last year into a handy report. Want to make tax time easier?
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