How to claim depreciation deductions if you are a drive for Uber or Lyft with a car that you own.
Working with Uber or Lyft means working as an independent contractor and you are responsible for your own taxes. This comes with a benefit on your end which allows you to take advantage of a number of tax deductions, which means more money in your pocket. Tracking both mileage and actual expenses for the year is a very wise strategy to help in maximizing your potential earnings as a driver. There are two deductions method you can choose from which is standard mileage deduction method or the actual expense method. Which is stated in the Tax Reference. You cannot use the two methods so you have to choose one but you can also deduct common operating expenses with the method you will choose to use. One of the common deductions is depreciation; If you are the owner of your business vehicle, you can deduct the value of your car over a period of 5-years through depreciation. There are a few different ways you can depreciate your vehicle. The only difference between the methods is in how you spread the depreciation expense out over the five-year period.
Some of the depreciation methods include;
· The Modified Accelerated Cost Recovery System (MACRS): This method is a hybrid of multiple depreciation methods. Typically, it is the method the IRS has you default to using.
· Straight Line: Equal expensing each year, so if you spent $30,000 on your car, divided evenly over 5 years, you would get a $6000 deduction per year). *Required if you switch from standard mileage to actual.
· The 200% declining balance method: You record more depreciation at the beginning of the five-year period; then you switch to straight line when that method provides an equal or greater deduction.
· The 150% declining balance method: You record more depreciation at the beginning of the five-year period (not quite as much as 200% method); then you switch to straight line when that method provides an equal or greater deduction.
Schedule C (Form 1040) line 13. Tax Reference: Actual Expenses.
Some other forms of deductions you can use are;
1. Standard Mileage
· The Standard Mileage deduction method is the easiest, compared to the actual expense method but may not give you the largest deduction. Total business miles are deductible, including the many more miles you drive in search of your next passenger or even you small errands in between I mean they do not count unless you do. But this is the why it is essential to count every mile so you can save or rather earn more money.
2. Car Payment
· This applies even if you lease, and you are not the owner of your car, you can deduct a portion of the lease payment proportional to the business use of your vehicle.
· You can also deduct your gas costs as long as it is business related. The gas costs that you incur while picking up customers and driving them to their destinations, or driving to meetings with potential Uber drivers that you are trying to recruit just any business-related gas costs will be deductible.
· Car insurance is another crucial cost of running your business – you always need it to drive. You can always deduct the proportion that is equal to your business expense.
5. Mobile Phone and Charger(s)
· Your mobile phone is the control center of your business when you are an uber or lyft driver. That means that you can–and should– deduct its full or partial cost when it comes time to file. The phone you purchased for work is deductible as well as your monthly plan.