A Guide to Tax Deductions for Rideshare Drivers

Understanding your business expenses is key to maximizing your earnings.

As a rideshare driver, you are an independent contractor, which means you're running your own business. A major benefit of this is the ability to deduct business-related expenses to lower your taxable income. The most significant deduction for most drivers is related to the use of their vehicle.

Choosing Your Vehicle Deduction Method

When it comes to deducting vehicle expenses, the IRS provides two methods. You must choose one for the year.

1. The Standard Mileage Rate

This is the simplest method. The IRS sets a specific rate per business mile driven for the year. This single rate is designed to cover the primary costs of operating your vehicle, including:

Gas and Oil
Maintenance and Repairs
Insurance
Vehicle Depreciation
Registration Fees

You simply multiply your total business miles for the year by the standard rate to calculate your deduction. You cannot deduct individual costs like gas or oil changes if you choose this method.

2. The Actual Expense Method

This method requires you to track and sum up all the actual costs of operating your car for business purposes. You can deduct the business percentage of expenses like:

Gasoline and Oil
Repairs and Maintenance
Insurance Premiums
Vehicle Registration
Lease Payments (if you lease)
Depreciation (if you own)
Tires, and other supplies

This method requires meticulous record-keeping of every expense. You must also calculate the percentage of time your vehicle was used for business versus personal use.

Beyond the Vehicle: Other Common Rideshare Deductions

In addition to your primary vehicle expenses, other costs of doing business as a rideshare driver are also deductible. Remember to keep receipts and records for these items.

Tolls and Parking Fees: Any tolls you pay or parking fees you incur while working are 100% deductible.
Business Portion of Cell Phone Bill: You can deduct the percentage of your cell phone usage that is for your rideshare business.
Passenger Amenities: Costs for items you provide to passengers, such as bottled water, snacks, or charging cables, can be deducted.
Rideshare Platform Fees: The fees and commissions charged by platforms like Uber and Lyft are business expenses.
Roadside Assistance: The cost of a AAA or similar roadside assistance membership can be deducted based on its business use percentage.

The Golden Rule: Keep Meticulous Records

Regardless of the method you choose, the IRS requires that you keep accurate and contemporaneous records. For mileage, this means a detailed log with the date, starting/ending locations, purpose, and miles for each business trip. For actual expenses, it means keeping all receipts and invoices. Using an automated mileage tracking app is the best way to ensure your records are compliant and you maximize your deduction.