Checklist for Taxpayers in the Sharing Economy
Many people participate in the "sharing economy" today: driving for Uber® and Lyft®, picking up groceries with Instacart® and having them delivered by Shipt®, and the list goes on. Note, these are registered trademarks of their respective owners and are not affiliated with this website.
Whether you’re picking up one of these gigs to make some extra cash on the side, or this has replaced your full-time job as a primary source of income, you are, in most cases, not considered an employee of the company you're working with. This means that you will likely report your income and expenses on a form called a Schedule C.
Because these gigs are often dependent on the use of a vehicle, you should try to maintain records of all your auto expenses. Below is a checklist for many of the things which you may encounter and what may be useful for accurately preparing your taxes.
Now, taxpayers are given a choice, they can either deduct their ride-share expenses (the actual expenses related to the vehicle usage) based on what was necessary for business use. Alternatively, they may use mileage traveled for business at the approved rate.
Every year, the IRS sets a business mileage rate for use by taxpayers who use their personal vehicle for business purposes. This is provided to help simplify the process of expensing a vehicle's operating cost for tax purposes.
If you choose to deduct the expenses for this vehicle rather than use the mileage rate, here are some of the costs you may encounter:
Tolls
Whether you use actual costs or mileage, you can always deduct tolls and other roadway expenses you pay out-of-pocket.
Car purchase
There may be limits on what you can deduct each year, but if the car was purchased primarily for business purposes it is usually deductible, at least partially. This includes taxes paid on the value of your vehicle (note, this does not include taxes on the weight).
Leases
There may be limits on what you can deduct each year, but if the car was purchased primarily for business purposes it is usually deductible, at least partially. This includes taxes paid on the value of your vehicle (note, this does not include taxes on the weight).
Auto insurance
Typically, auto insurance costs are partially deductible based on personal/business usage.
License and registration
Your license and registration is needed to legally drive. The annual costs for license and vehicle registration may be partially deductible.
Repairs and maintenance
Take note of how much you spent on car repairs, parts, oil changes and cleaning as these can often be a significant portion of your annual vehicle costs.
Amenities for your passengers
If you purchase bottled water, mints, tissues and other items to make passengers more comfortable and to receive good ratings, these items are fully deductible and not subject to the business percentage.
Supplies
Delivery bags and restaurant supplies to keep items sanitary and warm are fully deductible.
Phone bills
With most positions in the sharing economy, you will need your phone to work. Many people divide their phone bill in half to allocate half for business and half for personal use. If possible, you should pro-rate your bill based on the business/personal use.
Once you have all of these items and you have tallied your expenses subject to the business percentage, you should compare the deduction to that calculated at the standard mileage rate. Generally, if your auto costs are high, taking the actual expenses into account may result in a bigger deduction, if not the standard mileage-based calculation may benefit you more.
Regardless of the method chosen, you want to be able to show that your vehicle is used for business even though the standard mileage method relieves you from having to document all of your expenses.