*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.
Every gig worker wants to keep the largest portion of earnings as possible. One excellent way of doing this is to take advantage of the many tax deductions available to you.
The biggest of these, by far, is the expense you incur by using your vehicle for your business. There are two ways to calculate this deduction. One is by using the IRS mileage deduction allowance, and the other is by calculating all your vehicle-related expenses.
In this post, we examine both methods, giving you the information you need to choose which one will work best for you. Here’s what we’ll cover:
- Maximizing tax benefits
- Why use the standard mileage deduction?
- What does it take to track actual vehicle expenses?
- Choosing your best option
Maximizing tax benefits
There are many legal ways to maximize tax benefits and minimize the amount of money you owe in taxes. Before you can even begin to tally up your deductions, you will need to keep precise records that show what you claim as expenses in ways tax authorities understand: facts, figures, and receipts.
Whether you use the IRS standard mileage deduction or calculate your actual vehicle-related expenses, you’ll need to track your mileage and/or other costs associated with operating your vehicle. The deduction method you choose will dictate how closely you need to track these outlays, but one thing is for sure: you will need to track your mileage no matter which method you select.
Many drivers believe the apps they use accurately track all the work-related miles they drive, but this isn’t the case. Driving and delivery apps track the mileage you travel from the time you receive a ride or delivery request until you complete it—but that’s not every mile you drive for work. Your driving app doesn’t take into account the other deductible miles you drive, such as the costs you incur just going to work.
What type of expense is an example of the cost to drive to and from work? For starters, there are the miles you rack up while driving in between requests, and those long rides from your regular parking spot to places where you can expect to get some action on your apps. As a rideshare or delivery driver, you can deduct these miles as well.
To track every mile you drive, you need a sophisticated mileage tracker like Gridwise. Gridwise begins tracking mileage from the moment you “tell” the app to track your shift. Simply click on the button, and you’re on your way!
Every mile you drive—whether it’s to, from, or in between actual assignments—is logged in Gridwise’s mileage tracking software, which you can pull up at any time.
You will also want to make sure you begin the practice of tracking your mileage right away. While it’s possible to reconstruct your mileage records, as shown in this Gridwise blog post, using Gridwise to track your miles is far more convenient. Missing out on counting all your miles can be rather costly, as you’ll discover from these details about the IRS standard mileage deduction.
Tracking with Gridwise also means you’ll get reports every time you drive. You’ll see your total miles driven, expenses, and earnings all in one spot.
Why use the standard mileage deduction?
The IRS standard mileage deduction is designed to provide those who use their vehicles for work with a simple way to calculate the costs of doing so. Rather than enumerating each and every vehicle-related expense, drivers who use the standard mileage method simply apply the IRS standard deduction rate to their actual mileage. The result is the total deductible amount they can use for vehicle-related expenses.
For 2023, the IRS standard mileage deduction rate is $0.655. This figure estimates a driver’s operating costs and includes items such as fuel and depreciation. While you cannot claim those expenses when you use this method, there are others you can continue to deduct and add on to the amount you claim as your standard mileage deduction. These include
- parking fees
- tolls
- car washes and detailing
- registration fees
There might be other gig-related expenses as well, including water for your passengers, delivery bags and gear, electronics such as a phone or dashcam, etc. Use Keeper to go through all your expenses, and the app will produce a list of all the items you can deduct. This makes finding and enumerating your deductions clear and simple!
One more note: If this is your first year of driving for a rideshare or delivery app, the IRS wants you to use the standard deduction method. Following your first year, you can choose to switch to the actual expenses method. Let’s take a look at what that might be like, and if there’s any reason to shift gears, if you’ll pardon the expression, after your first year.
What does it take to track actual vehicle expenses?
While it isn’t impossible to track all your actual vehicle expenses, you will need to set up a system to make sure you capture them all. You will also need to know the guidelines for calculating depreciation, be clever about adding all your expenses together, and then determine what percentage of the time your car was used for business.
Here is a list of deductible expenses, according to Keeper:
- fuel
- insurance
- maintenance
- oil changes
- lease payments
- depreciation
As noted above, parking, tolls, car washes, and registration can also be deducted.
Keeping track of all these expenses used to be complicated, but with a slick app like Keeper, it’s easy. You can track these expenses with the app, and set up the Keeper app to search for others that you might have neglected or didn’t know about. Simply link Keeper to the bank account(s) you use to pay for your driving expenses, and the app will keep all your expense records for you.
See the Keeper website to discover more details about how this works.
Choosing your best option
Most tax experts will tell you that the actual expenses method yields a higher deductible income figure than the IRS standard mileage method. This is true, but only for drivers who use their cars for business to drive 10,000 miles a year or less. Unless you’re a very part-time gig driver, it’s likely that you drive more than that, in which case, listing your actual expenses might not be your best bet.
Let’s take a look at some calculations to illustrate the differences between the two methods.
Many drivers average 100 miles per day, according to posts on a popular Uber driver forum. Working five days per week, let’s say 50 weeks per year, the average full-time gig driver would clock 25,000 miles. Multiply that by the standard mileage deduction rate of $0.655 per mile, and the deductible income would amount to $16,375.
The same driver might find quite a difference when comparing actual expenses vs. mileage deductions. Totaling gas, insurance, registration, roadside service, maintenance, and other expenses is unlikely to yield a number anywhere near as high as the standard mileage deduction rate.
However, a part-time driver who clocks around 10,000 miles per year, with half (5,000) for work, could benefit from using the actual expenses method, if only slightly. The calculations in this post from Keeper show the following deductions (adjusted for 2023 gas prices) for a driver claiming 10,000 miles driven during the tax year, with 5,000 of those miles used for work.
Gas: $1765.00 (based on 500 gallons @$3.53 per gallon (per AAA)
Depreciation: $3,000 (based on a $20,000, three-year-old car)
Insurance: $1,500 (approximated average)
Repairs: $400
Oil: $100 (if driver does the oil changes)
Misc: $160 (registration, roadside assistance, etc.)
TOTAL: $6,925
Work-use ratio of 50%: $3,462.50
The same low-mileage driver, using the standard mileage deduction, would only be able to deduct $3,275 (5000 miles x $0.655). Because the IRS recently raised the standard deduction rate, the two figures are rather close. However, if that changes, the actual expenses method might make more sense for a low-mileage driver.
So is it better to write off gas or mileage?
The right choice for you depends on how much you use your car for your driving gig. The best way to decide is, after your first year, to calculate both methods and compare the results. (Remember, the IRS wants to see you use the standard mileage deduction for the first year you use your car for business.)
The key takeaway from when comparing actual expenses vs. mileage is that you need to track your expenses on each and every shift. Lucky for you, there’s Gridwise and Gridwise Tax Help, powered by Keeper. Get 30% off Gridwise Tax Help’s expense tracking and tax help services simply by using Gridwise. Gridwise Plus members get 50% off!
Put these powerful apps to work for you, and let your record keeping stress become a thing of the past. You don’t have to take us at our word though – here’s what other gig workers say about Gridwise and Keeper:
“After trying so many mileage app’s for delivery drivers- this has been my fave! Easily navigable & keeps track of lots of data- all for free! manages expenses, mileage, income, taxes.”
fastdasherKim
