One of the most proven methods to bring down your tax return is to take advantage of tax deductions. It allows you to deduct expenses related to driving like fees and tolls taken by Lyft and Uber from your funds.
Costs related to the use of your vehicle can provide the best deduction for you. It is also possible to deduct other expenses like snacks and water for your passengers, phone calls while driving. Failure to take these deductions will lead to a large cut of your profit going to Uncle Sam.
Filing Your Tax and Tracking Your Deductions
The best approach is to track deductions on the go. Going after your records later might be a little challenging. Have a compilation of these deductions, which helps when filing your tax. If you track business expenses, it will help you determine if you are in a profitable business.
Simple tips to prepare tax deductions while filing taxes are:
Have a System to Keep tabs on Tax Deductions
This involves knowing the expenses that you can deduct and track should there be an expense. You can employ an expense tracking spreadsheet or a tracking app. Consistency is key.
Have a Unique Credit Card or Bank Account for the Business
You need to separate driving and personal expenses. This allows you to refer to your bank or credit card statements should you need the record for tax purposes.
Employ Apps to Help
With the use of Apps, it will be pretty easy to track tax deductions, especially for mileages. There are free and paid apps you can use for this. Stride Tax is free, while MileIQ is paid per month. These Are examples of apps you can use
Be Diligent with Tracking Mileage
Your largest tax deduction will likely come from mileage deduction. This makes it essential to diligently track your miles, as Uncle Sam will need a mileage log.
Review the Driver’s Dashboard
There will be important data on your dashboard that you will not get in other places. This is where your annual income will be alongside some tax deductions you can claim. All tolls and commissions taken from your pay to Uber and Lyft will also be available here.
What Can You Deduct?
Deductions you can take are classified into two: vehicle expenses and operating expenses.
Vehicle expenses are expenses incurred from driving like parking, tolls, and mileage fee
On the other hand, operating expenses include all fees like snacks and water for passengers, cost of phone calls, and commissions given to Lyft and Uber.
Your tax deductions must be expenses made for business purposes strictly. For an expense that personally benefits you, only the business portion part can be deducted. For instance, if you have a mobile phone that you use 20% of the time while driving, 20% of the phone bill can be deducted.
Deduction of mileage that affects expense occurs in two ways.
Standard Mileage
You will multiply the miles driven for business purposes by IRS Standard rate (57.5 cents for 2020). This rate covers costs of driving, maintenance, repairs, gas, and depreciation. You should not deduct the expenses separately as it is the easiest and most common option.
Actual Car Expenses
Keep tabs on all your driving expenses. You might not be able to track the actual car expenses; hence get help from a professional. This method allows you to deduct a certain percentage of your real cost for repairs, gas, insurance, depreciation of your vehicle, and other expenses related to the use of your car. The value is a factor of the time percentage you drove the vehicle.
It is important to have receipts to support the claims.
Claiming Tax Deduction for Business Expense: How to
In reporting your profit to the IRS, you need Schedule C alongside your tax return. Your entire income and tax deduction will be recorded on either form. The tax will be on your net income: your total income without your business's tax deductions.
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