In our last blog, we highlighted ways you can maximize your tax deductions for this year, even without taking steps to document your business income/expense and mileage tracking as a rideshare driver. But like we discussed that leaves money on the table.
However, we want to help you avoid the mistakes of last year, gain better control of your finances and be ready for filing taxes in 2020. No matter if you’re a rideshare driver or not, but the tax landscape is ever-shifting, and terminologies can be vague across the board. Knowing the process in advance and planning for it gives you better control. You can do it manually and/or use technology to help you with taxes, but it’s always better to demystify the process in advance and plan.
It’s important to know that as a rideshare driver, you are not an employee but an independent contractor of that company. When you receive a payment from your rideshare company, it is not a salary payment net of withholding tax. This means that you are solely responsible for filing all your tax forms and paying taxes on income. Unfortunately, this responsibility can be challenging for many rideshare drivers. Below we share some ways that you can get ahead of the rideshare game by maximizing your tax deductions.
Learn how self-employment taxes work
In addition to your income taxes, you may have to pay self-employment taxes. The Social Security and Medicare taxes are combined to make up the self-employment tax rate, and it is your responsibility to take care of these taxes. Now, you do not have to become an expert in filing taxes, but it is good to know some of the basics for your personal filing. For instance, you may be required to file quarterly estimated taxes on Form 1040-ES if you have been ridesharing on a frequent basis. When tax season comes around, you will have to report your self-employment income and expenses on your Schedule C, and if your net income from ridesharing was over $400 for the year, you will also have to fill out Schedule SE (Form 1040) for self-employment tax.
Keep up with your tax deductions
As a self-employed individual, business expenses can add up quickly. It’s important that you take advantage of deductions to reduce your tax burden, and tracking your expenses are going to be key. For example, the most important area you will look at for deductions is your car. There are two different ways to deduct your vehicle expenses:
IRS standard mileage deduction
If you decide to take the IRS standard mileage deduction, the 2019 standard mileage rate is 58 cents per mile driven for business use. The easiest way to track your mileage is with a mileage tracking app. Most mileage apps will help you create a detailed mileage log, while tracking your mileage for you.
Deduct vehicle operating expenses
If you find that you can get a better overall deduction by deducting your actual vehicle expenses, assuming you have all of your receipts and documentation on file, then you may deduct your expenses for:
- Regular maintenance
- Registration Fees
Regardless of the deduction you choose to claim, you must properly track and keep detailed records of your driving activity. For example, if you are claiming mileage deduction, it is crucial that you track your mileage with detailed mileage logs. If you are claiming actual driving expenses, then you need to keep track of your supporting receipts, invoices etc, to prove those expenses.
Other deductible expenses besides mileage include:
- Part of your cell phone expenses from rideshare work
- The technology used to perform your job
- Car insurance premiums
- Commissions paid to the rideshare company
- Snacks and refreshments for passengers
- Parking Fees
- Car washes
- AAA membership
- Oil changes, tune-ups, windshield wiper fluid, and other miscellaneous car expenses
When it comes to taxes, tracking your mileage is an important part of being a rideshare driver. If you are not tracking your miles, then you are leaving money on the road. For example, you can easily put over 500 miles on your car for the week. That could translate to a $290 deduction each week, that’s over $15,000 through the year. That is massive!
The cheapest way to keep track is manually, however, cheap does not equate to easy. You can buy a book or notebook and write down your mileage by the day in an IRS compliant fashion. You must be disciplined to remember to do this every day. But, by doing this, you are only adding another task to your list. What if you are in a bad mood or running late? The last thing on your mind will be logging miles.
Fortunately, there are mileage-tracking apps that can help you automatically and manually track and log your rideshare miles. For a small annual fee, you can save a lot of time and hassle. You can also get all of your mileage information in a handy document that you can email to yourself or to your Certified Public Accountant.
Hire a Rideshare CPA
If you find it difficult to manage your own taxes, consider talking to a tax professional. There are dedicated tax professionals for rideshare drivers and small businesses. They’re also usually knowledgeable about technology improvements you should make to achieve an efficient, manageable and easy tax process. They will be able to assist you with filing your tax forms, selecting the right mileage tracking apps, accounting software etc. to help answer your specific questions and maximize your deductions.
Overall, the biggest component of filing taxes as a rideshare driver is mileage tracking. The benefits are significant if you can track your mileage effectively. TripLog has automatic and manual mileage tracking features that generate IRS compliant mileage logs and integrates with accounting software’s like QuickBooks and FreshBooks to help streamline your tax filing. With the right mileage tracking app, you won’t have to worry so much about tax calculations. Instead of constantly logging miles in your journal every day, with a mileage app, you can focus more on your business needs while efficiently saving money.