Auto Expenses for Ride-sharing Drivers: Understanding the Tax Benefits
Ride-sharing drivers who use their personal vehicles for business purposes are responsible for understanding the tax implications of their vehicle expenses. This article will provide an overview of the key expenses and tax rules related to vehicles used in ride-sharing.
Actual Expense vs. Standard Mileage Rate:
When it comes to calculating the deductible expenses for a vehicle used in ride-sharing, drivers have two options: the actual expense method or the standard mileage rate. The actual expense method allows drivers to deduct the actual costs of operating their vehicle for business purposes, including fuel, maintenance, insurance, and other expenses. The standard mileage rate, on the other hand, is a set rate established by the IRS that reflects the average cost of operating a vehicle for business purposes.
Depreciation Rules:
Depreciation rules for automobiles used in ride-sharing are determined by the Internal Revenue Service (IRS) and apply to all vehicles used for business purposes. In general, vehicles used for business purposes can be depreciated over a set period of time, based on the type of vehicle and the year it was placed in service. For passenger vehicles, the IRS currently allows for depreciation using the Modified Accelerated Cost Recovery System (MACRS). Under this system, passenger vehicles can be depreciated over a period of five years.
Special and Bonus Depreciation:
Special depreciation and bonus depreciation are additional depreciation deductions that may be available for taxpayers who use their vehicles for business purposes, including ride-sharing. Special depreciation allows taxpayers to write off a larger portion of the cost of a new asset in the year it is placed in service, while bonus depreciation is similar but may be temporary and subject to change. The availability and amount of special and bonus depreciation may change from year to year.
Conclusion:
Ride-sharing drivers who use their vehicles for business purposes should consult with a tax professional or refer to IRS guidelines for specific information on how their vehicle expenses and depreciation may be treated for tax purposes. A tax professional can help drivers determine the best method for calculating their deductible expenses, as well as any available special or bonus depreciation, based on their individual circumstances and the tax laws and IRS rules that are in effect at the time.
References:
https://www.irs.gov/pub/irs-news/fs-06-26.pdf
https://www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2022