The increasing popularity of rideshare driving has drawn plenty of attention to the possibility of earning a living by driving your own car around. The basis is simple; you drive passengers around to wherever they want to go in your own car and earn some additional cash.
There are plenty of different rideshare operators offering their services. Uber is perhaps the best known with drivers in hundreds of cities worldwide. Other rideshare companies include Lyft and Shuddle, among others.
While most people start out driving for rideshare companies to earn some extra money, there are some people out there earning a decent living form their efforts.
Some rideshare companies advertise that you could earn ‘up to $30 per hour’ by driving passengers around in your own car. What they don’t tell you is that there are also a range of operating expenses and costs associated with becoming a driver that could reduce your overall profits.
If you’re thinking about jumping onto the rideshare bandwagon, here are some things to consider first:
Treat it Like a Business
Even if you’re only in it to earn a few extra bucks, it’s still important to keep your personal and your business income and expenses separated. You don’t necessarily have to register a business name and set up a separate business entity with its own business banking accounts to do this.
Instead, keep accurate track of all your driving income and expenses on a separate spreadsheet or accounting software. When tax time comes around, you’ll be glad you did.
The fares you charge and the fees you pay may vary, depending on which rideshare company you drive for. Even within Uber, the type of service offered may change the amount you’re able to earn.
As long as you’re careful about reporting the accurate amounts you earn as a driver, you shouldn’t be surprised with a hefty bill at tax time.
Insure Yourself Properly
Your current vehicle insurance policy may not cover you while you’re working as a rideshare driver. Take the time to check your existing insurance policy and see what is and isn’t covered.
If your insurer doesn’t cover you, ask questions and find out who will cover you against accidents or injuries while you’re driving passengers around.
While most rideshare companies may offer some type of insurance coverage while you’re logged into their app and working, you should still get quotes from several insurers to be certain you’re covered. If you are involved in an accident while you’re working your rideshare job, you may also need to speak to a lawyer that specializes specifically in auto accident cases in Louisiana, like Keith Magness.
Itemize Your Running Costs
No matter how much you think you’re earning from your car, it’s important to keep an accurate track of your costs and running expenses. Depending on which rideshare company you work for, the fees they charge out of your fares may differ.
It’s common for most new rideshare drivers to think about how much they’re spending on fuel costs. However, have you also considered your other costs of operating your car as a rideshare driver?
For example, your car registration and maintenance costs will be paid for out of your earnings as a driver, as will your insurance premiums. If you took out a car loan to purchase your car, your repayments may also be considered expenses.
Track Your Deductions
However, there are plenty of other expenses and deductions that you’ll benefit from tracking throughout the year. You might have listed down how much you spent on your fuel costs, but the IRS may consider that your car could have also been driven for personal use as well as business use.
The IRS allows you to itemize your actual operating costs and deduct them accordingly on the Actual Cost method. All your vehicle running costs, along with parking costs and tolls can be included.
If you’re still paying off a car loan, your interest costs may also be deductible against your income, as should any depreciation on the vehicle, costs for gas, oil, tires, repairs and maintenance, registration, and licensing. The fees you pay to your rideshare company to be a driver for them may also be deductible.
Don’t forget other items you pay for in order to run your business. Your mobile phone or tablet PC are business costs, especially since you’ll be logged into your rideshare app while you’re driving, so a portion of your expenses can be attributed to business use.
Alternatively, you might consider using the ‘Standard Mileage Rate’ method instead. Whenever you’re working as a rideshare driver, be certain to log the miles you drive into a log book or other reporting app.
The IRS may allow you to deduct 54 cents per mile you drive for your business, which could be a helpful way to offset your taxable income.
However, if you do use the standard mileage rate, you may not be able to claim other deductions you might be entitled to.
To be certain you’re maximizing the deductions available on your rideshare income and using the correct method to suit your personal financial situation, take the time to discuss your options with a qualified accountant.
Chelsea Herbert worked in the transport industry for years before starting her own business. She now likes to share her ideas and tips with others who are thinking of work in this area.