As a rideshare driver, you have the option to deduct some of your miles, which can help you lower your total tax expense every year. However, many rideshare drivers are unaware that they can deduct their miles and come tax season find themselves panicking when they realize how much they could’ve saved as deductibles, had they kept proper records.
The IRS states that:
“If you don’t have complete records to prove an element of an expense, then you must prove the element with:
Your own written or oral statement containing specific information about the element, and
Other supporting evidence that is sufficient to establish the element.”
The second bullet point is your friend if you have not been keeping proper mileage records for the tax year. This simply means that the supporting evidence could be”documentary evidence”, in the case where direct evidence is not available. This simply means that even though you may have incomplete mileage records, you are still allowed to provide an estimate, as long as you have the evidence to back it up. However, finding evidence is the difficult part. Following are two methods/options to help you make up for an incomplete mileage log.
Ride-share companies typically have the records needed to estimate your business mileage, especially reputable companies like Uber & Lyft.
The catch is that these platforms keep tabs on your trip mileage, but only for miles driven when there’s a passenger onboard. They will not include the situations when you’re driving between trips or going to customers to pick them up. These trips are business miles, but you cannot get deductibles on because there is no evidence. This on-trip log of your mileage may be valuable to you, but keep in mind that it is the minimum of your deductible mileage. You’re leaving money on the table since some of your actual miles are not recorded.
Track your average business driving activity and extrapolate
Another way to calculate an estimate of your deductible mileage is to use the normal distance that you cover in a week or a month as your estimate for the entire tax year. Again, you can’t deduct mileage you cannot prove, so make sure you have credible proof of the estimates you provide.
If this seems like the only option for you, then there are two things you should do – first, calculate the average mileage for a given month, then find ways to prove that you drove a similar number of miles in the other 11 months. That proof could be in the form of your Uber/Lyft income and your trip logs. In case you remember certain months were busier or ‘slower’, exclude them and report it as such.
The two points illustrated above will give you a basic outline of your major business miles that are deductible. But what about miles you’re not capturing using these methods, such as the miles driven between trips or your commute to your passengers? Following are a few methods that can help you establish those miles as deductibles.
Find the lost mileage between trips
Another way to calculate the total mileage between your trips is to calculate the lost mileage between when a trip ended with a passenger, and where the next trip began with another. You can use the “gap” to calculate the mileage you incur between trips, which are deductible business miles.
Find the lost mileage for your commute to and from your first & last trip
Beginning with leaving and returning home, you’ll need to figure out the lost mileage for the commute. From picking up your first passenger to dropping off your last passenger and returning home for the day, you need to accurately determine the usual distance covered for both of these trips. For instance, if you remember where you picked up your first passenger and where you dropped off your last passenger, you can use those two locations to figure out the commute to and from your first and last passengers, which are deductible miles, according to IRS.
Check for accuracy
Calculating your total mileage is a required process in claiming your mileage deduction for the year anyway and it can also help you check for the accuracy of your estimates. Your total mileage not only includes business-related miles but also commuting miles, as well as personal miles. Primarily, the easiest way to calculate your total mileage is by using odometer readings. But if you forgot to take down those readings, you can often find them in old maintenance receipts.
Once you find your total mileage, you can start to estimate what your total deductible mileage is by finding the number that is between your total miles, and your rideshare miles (given to your by rideshare companies).
Word of Caution
Go ahead, use these techniques to get your mileage for this year. But be warned that these techniques put you at the mercy of audits and will not guarantee the maximum deductible for your business miles. You will not be able to establish your complete business miles and hence lose out on substantial tax- deductions. A better way to go about tax deductions is to be prepared and keep proper tabs on all your business miles no matter how tedious the prospects. This way you can ensure that you maximize your mileage deductions for the year.
It’s better to prevent a mistake rather than picking up the pieces afterward. So, how do you avoid forgetting to keep your logs again? The answer is simple – you should track your mileage! But we all know how tedious keeping individual records can be. IRS is actually very easy on how you keep track of it if it’s timely. Keeping daily tabs or even weekly tabs can be difficult. Also, it’s important to store the record for at least the next five years, in case of future audits.
Luckily, technology comes to the rescue. Many automatic and reliable mileage tracking solutions, like TripLog, now allows ride-share drivers to easily keep tabs on trips. TripLog has six different automatic-tracking options and integrates with accounting software like QuickBooks and FreshBooks for easy tax filing. Logging in trips and maintaining tax compliant reports makes your tax-prep completely hassle-free. So, download TripLog today and claim all the mileage deductions you deserve.