The biggest money mistake Uber Eats drivers make is to not write off car expenses on their taxes.
Either they didn't know how or they didn't know they could.
Don't make that mistake. Every mile that you track and claim can shave 9 to 14 cents off your tax bill (possibly more).
Fourteen pennies doesn't seem like much. But if you're one of those who drives thousands of miles, those pennies add up in a big way.
If you put 10,000 miles on your car, that's a $5,600 expense deduction you can claim on your taxes for the 2021 tax year. In other words, it reduces your taxable Uber income by that much.
That's $857 less on your Self-employment tax bill. It's $560 less in income taxes if you're in the 10% bracket. By tracking and claiming those miles, you just saved $1,417 off your tax return, not to mention any state and local taxes.
Is that enough to get your attention?
This is the third article in our series on Uber Eats Taxes. Each article looks at different aspects of the tax filing process related to your deliveries as an independent contractor in the gig economy. You can see a complete list of articles from the series here.
We're going to talk more about writing off your car expenses as an Uber Eats independent contractor (as well as other food delivery services like Doordash, Grubhub, and Instacart). Much of this is applicable to Uber drivers, Lyft drivers. and food delivery drivers for other services.
In this article, we'll discuss:
- How you CAN claim your car expenses even when taking the standard tax deduction.
- Two ways to claim your car expenses on your taxes
- What does it really cost to use your car for delivery or rideshare?
- Which is better: The standard mileage allowance or the actual expense method?
- Why it's important to track your miles regardless of the expense method you choose
- Which miles can you claim?
- What is the best way to track miles for Uber Eats?
- Are there car expenses you can claim even when claiming miles?
- Can you claim miles if you deliver Uber Eats on a motorcycle, scooter, e-bike, or bicycle?
- How do you claim miles on your tax form?
But before we get started:
This series relates to Uber Eats 1099 taxes in the United States. I know that Uber Eats operates in several countries. Many countries handle their gig economy taxes in a similar fashion, however there may be significant differences if you are not in the U.S.
This article is not and should not be taken as tax advice. I'm not a tax professional or tax expert. My purpose with this and other articles in this series is to provide information, not advice. The idea here is to explain how the vehicle expense deductions work in relationship to your taxes.
For personal tax advice that relates to your own situation, you should seek out a tax expert who can explain things and provide personalized advice for you.
You CAN claim your car AND take the standard deduction.
I mentioned earlier that a lot of people don't realize they can claim their car expenses.
I don't bother tracking the number of business miles or expenses because I don't have enough deductions to itemizeQuote of an unbelievable number of people who are all making a very expensive mistake
This is very important: It doesn't matter whether you take the standard deduction or if you itemize. This is because you don't claim your miles or car expenses in your itemized deductions.
We'll talk about this more towards the end of the article, but you claim your miles or other business expenses in a different place than your itemized deductions. Technically, your miles and expenses are not tax deductions, but they are business expenses.
It all happens in the income part of your income tax return. That's because your income for your delivery business (remember that you're a technically a sole proprietor or small business owner here, not an employee) is actually your profit. It's NOT the money you receive from UberEats as reported on your 1099 forms or tax summary.
What that means is, as part of that income process, you have to figure out your profit. You do that with a form called Schedule C. There, you list all of your income and expenses. Once you've figured out your profit, you add that to any other income (if any) on your 1040 tax form.
All this is done before you ever think about itemized deductions. The beauty of it is, you can do all this whether you itemize your deductions or if you take the standard deduction.
What does this mean? It means you've lost any excuses. You absolutely MUST be keeping track of your car expenses.
Unless of course you LIKE paying extra taxes.
Two ways to claim your car expenses on your tax return
I just mentioned the whole standard deduction verses itemized thing. It's a great example of how the United States government does things on your taxes to simplify things. You can choose to claim and itemize a list of deductions, or you can just take the simpler flat rate standard deduction.
They did something similar when it comes to claiming the costs of driving your car for your business. You have a choice between tracking every single car expense and then determining what portion of all that is related to your business, OR you can claim a flat rate per mile.
You have to choose. In the same way that you can't claim the standard deduction and ALSO claim your mortgage interest on top of it, you can't take the mileage allowance and also claim expensive car repairs. Doing so is double dipping.
The Standard Mileage Allowance.
Each year, the IRS determines a flat rate allowance called the Standard Mileage Allowance. For 2021, that rate was 56 cents per mile. For 2022 miles, the standard mileage rate is bumped up to 58.5¢/mile.
Here's how it works: You keep detailed records of every mile you drive as part of your business. You add those miles up and multiply that by 56 cents (for 2021 miles).
The mileage deduction is NOT a reimbursement. The government is not giving you any money for driving your car. That seems to be a common misunderstanding I see in driver forums. This is a business expense. What it does is let you deduct 56 cents for every mile from your business income.
The business mileage deduction is also not what it actually costs to operate your car. Actual costs vary depending on the age and condition of the car. The purpose here was not to say this is what it costs. The purpose was to come up with a reasonable enough rate that would cover most car owners and thus simplify record keeping and tax filing.
The Actual Expense Method
The other thing you can do is keep track of everything it costs to use your car. And then you have to figure out how much of your car use was for business so you know what percentage of those actual expenses you can claim.
Unfortunately you can't just say this tank of gas or that oil change is for business, or this repair is because of all the miles and thus I can claim the whole thing.
Your car is like many things that has both business and personal uses. The trick is to know how much of your use was for business. For that reason, you still need to keep a log of your business miles. Then divide those business miles by the total miles you drove that car during the year.
That gives you your business percentage.
For example: If you put 10,000 miles on your car and 8,000 of those miles were for business purposes, you can claim 80% of your actual car expenses.
What car expenses can you claim using the actual expense method?
The way that the IRS comes up with their standard mileage deduction is they look at a set of expenses that are related to the operation of your car. Remember that this is an assessment of what a reasonable amount is to claim.
The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile.IRS announcement of the standard mileage rates for 2022.
But we're talking about actual car expenses, aren't we?
In a way we're talking about both. Both methods intend to cover the same expense items. The key here is it's “based on a study of the costs of OPERATING an automobile.”
In Publication 463, the Internal Revenue Service defines the things that are part of operating your automobile.
- Oil changes
- Licenses and registration fees
- Depreciation (if you own or finance the car) or Lease Payments (if you lease)
- Garage Rent
- Parking and tolls
Some of this can be complicated, especially the part about depreciation. The thing is, you can NOT write off your car payments on your taxes, because your car is an asset. The IRS treats it like it's money, which means it's not really an expense.
However, when an asset loses value, that loss of value is an expense called depreciation. Cars can lose a TON of value, especially when we put a lot of miles on them. That's why depreciation is a big part of the actual expense method.
Using the actual expense method, you need a record of every single gas fill, all the other expenses, and then you have to figure out your depreciation. Add all of that up and multiply it by your business percentage and you have your actual expense deduction.
What does it really cost to use your car for delivery or rideshare?
Actual costs vary quite a bit. Some of the expense items, like insurance and registration, are the same whether you drive 1 mile or 100,000 miles. The total you spend on gas, oil, maintenance etc tends to increase as you drive more miles.
American drivers average 14,263 miles per year. That factors into the IRS's study. However, many delivery drivers can double or triple those miles or more. Usually the more miles you drive, the lower the average cost per mile, because fixed costs don't change with the miles.
If you have a newer, more valuable car, your actual costs can be closer to the IRS rate of 56 cents per mile. That's because the car tends to lose thousands of dollars in value each year. An older, reliable inexpensive car can cost far less than that.
For instance, I started out with a 20 year old Buick that I bought for $2600. Gas mileage wasn't great, about 19 miles per gallon. It was old enough that I had to take it in for repairs more frequently than you would with a newer car.
I sold that car two years later for $1200. That means $1400 was my actual depreciation or loss of value. In the end, I added up all of my costs using that car: all the gas, maintenance, repairs, part replacements, insurance, registration, everything. Even with the bad gas mileage it still only cost 26.1 cents per mile to operate that car.
I've looked at a lot of examples. Older cars in good condition tend to run in the 20-30 cent per mile range. Cars that are in the middle range (7 to 15 years old) might be a few cents more. Brand new cars are often closer to 40-50 cents a mile.
I write more about the cost of operating your car here.
Which is better: Claiming the standard mileage allowance or the actual expense method?
Most drivers can claim more using the standard mileage rate.
There are times where you can write off a lot more using the actual expense method. For instance, there are special allowances that let you write off much or all of the purchase price of a car in the first year. When you add that to first year tax and registration costs as well as the regular ongoing expense, it's possible that you could write off quite a bit more with the actual cost method than with the standard rate.
However, that may not be the best move for the long term. When you claim the actual expense method the first year you use your car for business, you have to use the actual expense method every year after. There's no switching to the mileage allowance in following years.
The problem with that is, if you wrote off most or all of the purchase price the first year, now you can claim little or no depreciation. So now you're stuck with actual expenses and unable to claim one of the largest deductions. That leaves you claiming much LOWER in years to come than if you'd taken the standard mileage the previous year.
Along those lines, the IRS methods of calculating depreciation are complicated. There's something to be said for the simplicity of a per mile rate.
However, in the end, the best decision for you is based on YOUR situation. That's why I really encourage getting a good tax advisor.
Why it's important to track your miles
The IRS doesn't let you just estimate. You can't guess at it.
When you list your deduction on Schedule C, there are two very important questions on there:
- Do you have evidence to support your deduction?
- If “yes” is the evidence written?
The IRS requires written evidence to support your deduction. When you are filling out your taxes you are essentially swearing that you have that written evidence.
Not having that evidence can be a real problem.
If you want to write off vehicle expenses, you have to have a written record of your miles. The IRS requires four things on that record:
- The date (meaning you need a daily record)
- How many miles you drove
- Where you went
- The business purpose of your trip
That mileage log is necessary whether you take the standard mileage amount or claim actual expenses. That's because when taking the actual expenses, you have to have evidence that you actually drove your car for business.
In part 2 of this series, we talked about how Uber Eats will tell you the total online miles that they think you drove in the past year on your annual Uber tax summary form. The problem with that mileage total is that it does not meet the requirements above.
If you do not track your miles in a way that meets that requirement, you run the risk of an auditor disallowing your entire mileage or car deduction. That can cost a lot of money.
Which miles can you track?
The IRS has a standard for claiming business expenses, and you can apply that standard to the miles that you write off for your business: It must be reasonable and necessary for your business.
It is extremely reasonable and often very necessary that you use your car for deliveries. I like to do bicycle delivery, but I'm horribly slow. If I want to be profitable, I need to drive.
Driving to the mall for personal purposes is not reasonable or necessary for the operation of your business.
That's one rule of thumb you can use for when to track. Here's a simpler one: If you have your app on and you are logged in as available with intent to accept orders, you are driving for your business.
In fact, insurance companies use the status of your app to determine whether you are using your car for business purposes. If an insurance company policy excludes you from coverage while delivering, that exclusion includes any time that you are logged into the app.
I go into a lot more detail on what miles to track here if you want to dive in deeper. In that article we also discuss things like commuting miles and whether you can claim EVERY mile you drive from the moment you leave your driveway to the moment you get back.
What is the best way to track your miles?
The best way to track miles is whatever method works best for you.
That seems like a vague answer, doesn't it? That's because everyone is different. What works for me may not work for you. There are three main ways that you can track miles:
- A manual log, hand written or using a spreadsheet, where you record your odometer reading at the start and end of every trip
- Using a free GPS mileage tracker program like Hurdlr where manually begin recording at the start of each trip, and manually stop recording at the end.
- A paid GPS mileage tracker program like Hurdlr's subscription plan or Triplog which can sense when your car is moving and automatically begin and end recording. (Full disclosure: Hurdlr and Triplog links are affiliate links, meaning I can receive a small payment if you purchase their products).
I've always tracked manually. I've found that it's far more accurate, and I capture every mile that I'm driving. The downside is, if you are the type to forget to write down your odometer readings, you can lose out on a lot of miles this way.
If you are prone to forget to record your readings, you might be better off with a paid program. You're less likely to lose trips that way. There can be accuracy issues, because the auto start apps often don't start recording until you've driven a little ways. Also, phone app GPS just sometimes has a way of glitching and parts of your trip could be lost.
I've found the free apps are more accurate than the paid version, because they start recording your trip immediately when you tell it to do so. You don't lose that 1/10 to 1/4 of a mile like on some auto start apps. However, they can be prone to app glitches, and like manual tracking, you're out of luck if you forget to start tracking.
It all depends on which fits you best. We go into a lot more detail with examples in this article on how to track miles.
Are there car expenses you can claim even when claiming miles?
I know of three special car deductions that you can claim even if you take the standard mileage rate deduction.
The biggest one is the business percent of the interest on your car loan (if you have one). A lot of people don't realize that's a deductible expense that can still be claimed when claiming miles. Interest expense is not part of the list of expenses the IRS outlines above, and it is not a cost of operating your car. It's a cost of ownership. If 80% of your miles are business related, you can claim 80% of your car loan interest.
A second one is the business percent of your property tax on your car. Property tax is different from registration costs and, like interest, is a cost of ownership but not operation. And, like interest, it's not listed in the items that the IRS includes in their calculation of the standard allowance.
Finally, parking and tolls directly related to your deliveries can be claimed 100%. If you're regularly plugging the meter when parked downtown, keep a record. If a delivery requires you to take a toll road, keep a record.
This one's a bit odd because parking and tolls are part of the list above. However, the IRS makes a distinction. Parking and tolls that are part of your day to day operation of your car (such as commuting, etc) are part of the total actual expense. Parking and tolls that are part of a specific business trip are a business expense.
In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses.)IRS Publication 463
We just touched on the basics here. You can read more about car related expenses that you can claim with the standard mileage allowance in this article here.
Can you claim miles on a motorcycle, scooter, ebike or bicycle?
The IRS only lets you use the standard mileage rate with certain four wheel vehicles. The typical cost of operation for Motorcycles, bikes, e-Bikes and scooters is often far below that of passenger vehicles.
However, you can use the actual expense method for those types of transportation. There are actual costs of operating a motorcycle or bike, and you are allowed to claim the business percent of those costs (including depreciation).
Keep track of how much you use your bike, motorcycle, e-Bike or scooter for business, and how much for personal use. You can use an odometer if it has one, or tracking program like Strava, Hurdlr or others. That allows you to know the business percentage of the use of your two wheeler.
Then track all of the costs of operation. Fuel, parts, tires, repairs, maintenance, insurance, accessories.
I do a lot of bike deliveries, and I record my bike expenses as a line item in “Other Expenses” on Schedule C. We go into more detail here about claiming your bicycle, scooter or motorcycle delivery expenses.
How do you claim your miles or actual expenses on your tax form?
Your mileage claim or actual expenses claim goes on Schedule C of your tax form.
This is done in the income part of your tax return. At tax time, if you are using a tax program like Turbotax it's usually going to happen right after you enter your W2 income information.
On line 9 of Schedule C, you enter your Car and truck expenses. Here on line 9, you enter EITHER the business percent of your actual car expenses, OR the standard mileage rate (NOT a combination of the two). If you have parking and tolls related to specific deliveries, you add those to the total on Line 9.
If you claim car expenses, you are also required to fill out Part V (the screenshot above with the red arrows). There you need to provide details about your car such as how many miles you drove, how many miles were for business, when you started using the car, how your car is used, and whether you have evidence to support the deduction.
As I said earlier, this allows you to claim your expenses regardless of whether you take the standard or itemized deduction on your personal income tax. This is a business expense, not an itemizable tax deduction.
In fact, with the Tax Cuts and Jobs Act of 2017, you can no longer itemize business miles. It can only be taken as an expense on Schedule C.
One of the biggest benefits to writing your car expenses off on Schedule C (instead of as a deduction) is that it lowers your net income from your business. As a tax deduction, it wouldn't reduce your self-employment taxes (Social Security and Medicare) but as a Schedule C expense, it does.
You can get a feeling for how your miles impact your taxes with our Uber Eats Tax Calculator. Here you'll enter your income, miles, and other expenses and get a feel for how it impacts your overall tax picture.
Pay attention to your use of your car for deliveries. Track it. Keep a record. Then write it off as a business expense. This will tremendously reduce your obligation when tax season rolls around.