Tax deductions

Do you drive for a transportation service? 4 tax deductions you should know about

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You could be in line for some serious tax savings.

Key points

  • Expenses you incur in a side business may be tax deductible.
  • Car washes, car repairs, passenger amenities, and cell phone bills can all be tax deductible for rideshare drivers.

Nowadays, many people are indulging in side businesses to supplement their income. Since the cost of living is rising in all areas thanks to inflation, this is not a bad decision. In fact, a side hustle could not only help you cover higher living expenses, but also allow you to bulk up your savings and build more of a financial cushion.

Now, there are various side gigs that you can lean on to boost your income, but driving for a rideshare service is a popular service. The advantage of this gig is that it is very flexible – you can pick up passengers at your convenience and work overtime when a greater need for money arises.

Driving for a rideshare service also means you may be in line for certain deductions when you file your taxes. Here are four that you may be eligible to claim.

1. Car washes

When driving passengers around town, it is important to have a vehicle that looks clean and presentable. This could mean paying for more frequent car washes than you would normally need. The good news is that this expense is a valid deduction on your taxes.

2. Car repairs

The more you use your vehicle, the more likely you are to encounter a repair situation. You can deduct auto repair costs on your tax return, but only up to a point.

The reason? Chances are you use your vehicle both for profit and for your personal needs. If you are claiming a tax deduction, you will need to determine how often your vehicle is driven for business versus personal use. If you decide it’s a 50/50 split, you can claim 50% of your auto repairs on your taxes, since that’s the part that relates to your side gig.

3. Amenities for passengers

Many people who drive for a rideshare service rely on generous tips to earn a decent income. And you might be more likely to win over customers by offering them extra conveniences during their travels. If you regularly store things like tissues, sanitizer, disposable face masks, or water bottles in your vehicle for your passengers, these are all expenses you can deduct on your taxes.

4. Your mobile phone bills

To work for a rideshare service, you need a mobile phone with that company’s app — it’s your ticket to securing fares and communicating with riders. Thus, you can deduct part of your mobile phone from your taxes.

But as is the case with auto repairs, you’ll need to consider how much you use your cell phone for business purposes versus personal use. If you determine that you use your phone for your own benefit 70% of the time and for business purposes 30% of the time, you can deduct 30% of your cell phone from your taxes.

Now, a quick note on personal use: you might be wondering how the IRS will know how often you use your phone for what purpose. And the reality is that in many cases it won’t. However, if you claim to use your phone 90% or 100% for business purposes while driving part-time for a rideshare service, the IRS will likely become suspicious — and they might choose to audit your claim. If you stick to a reasonable percentage of work-related use, chances are that won’t happen.

Claim the deductions to which you are entitled

Driving for a rideshare service could end up being a lucrative side job for you. And if you play your cards right when filing your taxes, you may be able to save even more.

That said, if this is your first time claiming business expenses related to a secondary hustle, you may want to consider hiring a tax professional to help you file your return. A tax professional will be able to tell you exactly what expenses you can and cannot deduct, so it may be worth paying a modest fee for this accuracy and peace of mind.