This is a transcript of Episode 3: Every Rideshare Driver’s Tax Deduction Guide. You can find show notes, comments and more by clicking here. You can also listen to the podcast in iTunes, Stitcher or wherever you get your podcasts.
Welcome to The Rideshare Guy Podcast Episode 3. I’m your host, Harry Campbell. Today, I’m going to be discussing the world of Rideshare. The blog and the podcast are dedicated to giving you the latest news, information and issues of the day. So whether you drive for Lyft, Uber, SideCar or anything in between, we’ll cover it all. You can head over the blog and check out all of our great content.
This episodes and show notes can be found at www.therideshareguy.com/episode3. If there’s anything you want me to write about or talk about, feel free to reach out to me on social media. Our Facebook page is at facebook.com/therideshareguy, or you can find us on Twitter @therideshareguy. If you know of anyone, new drivers, people looking to drive, friends, family, relatives that you think might benefit from this podcast, please feel free to share it with them. I’ve seen a couple of reviews getting up there on iTunes. I just want to say big thanks to everyone who has left me a review on whether its iTunes or Stitcher. So far so good with the podcast. The feedback I’ve been getting is awesome. I’m going to keep on doing it.
This week, I’ll be actually getting married so I’m going to be taking a little bit of a break from blogging and podcasting. I’ve got a few articles queued up though so you’ll still see all the same great content. I just won’t be able to respond quite as quickly to comments and questions to my inbox as I normally do but I will definitely get back as soon as I’m done with my honeymoon. We’ve got two weeks that we’ll be spending in Europe actually. We’re spending five days in Rome and then we’re going to head over to Greece and do three days in Santorini, three days in Naxos. It’s a small little island. It’s a little bit less touristy. Then three days in Athens, one day in Istanbul, and then we’ll be heading back.
So I don’t know if you guys know this, but one of my other hobbies is racking up credit card points and traveling and all of that kind of arena. So for this trip coming up, we’ve got some pretty cool hotels days and we’ve got a lot of flights that I booked with points and things like that. If you want to learn about my trip and what I did over there, you can checkout my personal finance blog at yourpfpro.com, where once we get back from honeymoon, I’m actually going to be detailing the trip and how I paid for almost half the trip with miles and points and things like that. It still wasn’t cheap, but having all those points and miles definitely helped offset about half the cost of all of my flights and all of my hotels and also allowed us to stay in some pretty nice places that I wouldn’t have otherwise been able to.
So with that, let’s move on to the topic of today’s show. It’s definitely an important one and it’s probably after the insurance issue that I talked about in episode number two. It’s probably the second most requested topic I’ve gotten through emails and online and things like that.
So today, we’re going to be talking about every Rideshare driver’s tax deduction guide. That’s the topic of this show today. Before I get started, I would do want to give a quick disclaimer. I’m sure you’ve heard it before. But I’m not a tax professional. This podcast is for informational purposes only. You should not take anything that I say as fact. Any information provided in this podcast is solely applicable to my personal tax situation and not yours. Any correspondents between you and I does not create an advisory, fiduciary or personal service relationship.
So whether you comment or email and I respond to you, none of that is a relationship between you and I. So basically, what all that means in layman’s term is that you are responsible for your own tax return and not me. You definitely should be on to a CPA and getting advice from them. Everything that I’m going to talk about in this podcast is really only applicable to my personal situation and the things going on in my life so it probably will not apply to your situation.
What I’m going to be talking about today though is Lyft and Uber’s policy on taxes. What do they say when you ask them, when you email them? What are they going to tell you and what it means to be paid with a 1099? As we all know or we should know that working for Lyft and Uber, we get paid 1099. We’re going to talk a little bit about estimated taxes and why you need to be paying estimated taxes. Then the big one, deductions for Rideshare drivers. We’ll talk all about actual mileage versus total expenses. What’s a deduction? What’s an expense? What can you deduct? What can’t you deduct?
Even cooler, we’ll talk about how to maximize your mileage deduction. You’ll see why that is so important once we get into the podcast. Then at the end, I’m going to give you guys the best app, in my opinion, that I use to track all this stuff. How do I keep track of my receipts? How do I keep track of my mileage and things like that.
First, let’s talk about Lyft and Uber’s official policy on taxes. What do they say when you email them? If you’re in the lounge on for Lyft on Facebook, if you ask a question, what do you think they’re going to tell you? You may have seen this type of answer before. But in my opinion, it’s kind of a BS answer. They basically just say, “See a tax professional.” I mean, I’ve asked for help. I know a lot of other drivers and have ask Uber and Lyft for help. To be honest, they’ve been pretty unhelpful. I mean, I think they should definitely be giving out a lot more information in helping out drivers but I also understand why there not. In today’s society with people loving to sue each other. Especially Uber and Lyft having so much money, I’m sure that they’re just asking for a lawsuit if they were to give out tax information.
So that’s why they don’t give out tax information. Luckily, it’s up to you to figure it out and it’s not too tough. There’s just a couple of little things that you need to know.
The 1099 versus W-2 is a big issue that I see come up a lot. With normal jobs, you get paid with the W-2. You have benefits, taxes are taken out of every paycheck. I know when I first started working, I got my first paycheck and I said, “Oh, you know I was expecting X amount of dollars and it was about half that.” I said, “What the heck is going on here?” Well, those are the taxes that you have to pay federal. You have to pay state Medicare, things like that.
So with the normal job, almost everyone has a normal job at some point in their life where they’re going to get paid W-2. Not everyone though has had a 1099 job. With the 1099, you get the full amount and it’s up to you to put aside money for taxes. So I have some experience with this because throughout the years for whatever reasons, I’ve gotten paid with quite a few 1099 jobs, everything from coaching. I got paid 1099 so I got the full amount and I had to put aside money for taxes, everything from coaching to blogging on working online. Now, I get paid all 1099s, and sometimes I get payments and don’t even get 1099s.
So if you are self employed, you’ll generally need to fill out a Schedule C to report how much money you lost or made. The Schedule C is just your profit or loss from a business. That’s what you do on your taxes. Now, one term you’re probably here throwing around a lot of sole proprietorship. As a Lyft or Uber driver, you’re actually a sole proprietorship. It basically means that any business that you operate and control, that’s not set up as a legal business entity like an LLC or something like that. But even if you are set up as an LLC in your actual business, you still need to complete the same schedule C.
I think a lot of people get caught up here because they say, “Oh, you know, I’m Just a Lyft driver, an Uber driver. I’m not a business.” But actually, you are your own business. I am always recommending to people that you should definitely treat it like business. Not everyone has experienced, but this is a great way to get experience and to learn the ins and outs of running your own business. A business doesn’t necessarily have to have employees or an office. I mean, it can for sure, but having a business basically just means that you are the boss. There’s no one above you writing your paychecks or withholding taxes from your pay or anything like that.
So let’s say even if you just use your lawn mower and you went cut your neighbor’s grass for ten bucks a yard every weekend, you’re still running a sole proprietorship. That’s actually the same as driving for Lyft or Uber in the eyes of the IRS.
So basically, any activity qualifies as a business as long as your primary purpose for engaging in that activity is for income or profit and you’re involved in the activity with continuity and regularity. Obviously, that definition is from the IRS. I can link to a little bit more information if you guys still have questions on 1099 and sole proprietorships and stuff like that.
One thing that I want to talk about real quickly is the $600 myth that I hear coming up a lot. If you’ve work other jobs in the past where you have a 1099, you know that if you get paid less than $600, you might not get a 1099. In fact, you probably won’t get a 1099. But all income earned as an independent contractor, self-employed, anything like that is taxable. It doesn’t matter whether you receive a 1099 or not, you’re supposed to pay income tax on any money you make. So whether you get that 1099 or not, make more or less than $600, it doesn’t matter. You have to pay taxes on all of that.
Now, where people get caught up a little bit is that $600 rule, normally applies to more traditional businesses where for example on my last coaching job, I would get paid 1099. Since I made more than $600, they had issue me a 1099. Now, with Uber and Lyft, they consider themselves online payment providers similar to a PayPal and Amazon Payments or something like that. Now again, this is a little bit of a funny a rule. But since I’ve been working on the online sphere, I’m very familiar with it, all of the affiliate marketing, Google Adsense. All of those types of online payment providers have the same exact rule.
Basically, if you do 200 transactions and make $20,000, then you’ll get a 1099-K. Now, what that means is it applies to almost anything. So if I’m talking about PayPal, I can get $10,000 in payments from many different people and I won’t receive a 1099. But as soon as I break that $20,000 and 200 transactions, I will receive a 1099-K. Now, working in online and all of the things that I do in my blogging, I’ve actually don’t make that much so I’ve never made $20,000 and I’m never even come close to the 200 transactions so I have never received the 1099-K from any of those sources.
Now, this is actually the exact same thing that you’ll see on Lyft’s website. Lyft’s official policy, I’m going to read it word-for-word. “Drivers who give at least 200 rides and earn at least $20,000 in ride earnings from passengers in the last year will receive a Form 1099-K. Drivers who earn at least $600 in earnings from the bonuses including New City Bonus, referral bonuses, etc. Mentor training and reimbursements in the last year will receive a Form 1099-MISC. Drivers who do not meet either of the above criteria in the last year will not receive a tax form.
So what that means is exactly what I said. They consider themselves in this online payment provider arena. So if you don’t have 200 rides and $20,000 in transactions, you’re not going to get a 1099. But there’s a caveat. Because if you are earning $600 in bonuses or anything, mentor training and things like that, I guess they consider that not in the same sphere as their online payment providing portion of the business, so they can say that more like a traditional independent contractor 1099 job where that $600 rule comes into play. If you make more than $600 in bonuses, then they will issue a 1099-MISC.
Uber’s official policy, it doesn’t exist on the website currently. I emailed them but I’ve been having a horrible time getting answers or any type of support. It seems like I’ve asked maybe five to ten questions over the past couple weeks. I think they’ve answered maybe one or two.
I found a couple articles online from back in the day when I think Uber have their tax policy published. I’m pretty sure that I have actually read it before because in an earlier article that I wrote on the blog, I can link to it. But I did a quote from one of Uber’s pages and I didn’t link a source but I’m pretty sure that they had it up on their site at one point, and it was exactly the same as Lyft. So I don’t know what exactly Uber’s policy is right now but I’m 99% sure at one point, it was the same as Lyft since Uber also considers themselves in that same online payment provider category so the 200 rides, $20,000 transaction rule will apply in the same $600 bonus getting a 1099-MISC will also apply. That about sums it up for Uber and Lyft’s official policy on 1099 and when they will be issuing them and when they want.
Now, we’re going to move on to estimated taxes for 1099 payments. So when you get paid with a 1099, no taxes are taken out of your paycheck. Most people know that with the W-2 traditional job, the employer takes out taxes, social security, federal state, Medicare, all of those good things. But when you get paid 1099, you actually don’t have any taxes taken out. Instead, you have to pay estimated taxes. So in order to do that, you need to file a 1040-ES and there’s four payment periods. Essentially, what it does is its going to help you so that you don’t come to the end of the year and realize that, “Oh hey, I got paid $10,000 and I owe the IRS whatever amount but I don’t have it.” That’s what the IRS knows. A lot of people might spend this money if you don’t make them pay estimated payments, estimated taxes so that’s why they make you file that.
If you don’t file for whatever reason, that’s always a bad thing. IRS can come after you for the entire amount of income. They won’t know about any deductions that you’ll have. We’ll talk about a little more later, but the good thing about working 1099 jobs is that you’re your own business and you have access to taking a lot of deductions that you wouldn’t be able to with the W-2 job. So the IRS won’t know about any of those. They’ll just assume the worst case scenario that you haven’t paid whatever amount and they’ll come after you for it. So it’s definitely never a good idea to not file your taxes. All of the income that you make, you need to claim and you need to report it whether you get a 1099 or not. So if you do find yourself in that type of situation where you don’t have the money, it’s definitely better to file an extension or underpay and not to pay at all. That’s usually not a good thing.
If you’re a W-2 employee like me, so if you drive for Lyft and Uber part-time, then you can actually increase your withholding, adjust it so that you get more taxes taken out of your W-2 than normal. So your day job, you pay more in taxes than you should be. So that way, you don’t have to make estimated payment taxes on your 1099 income.
Now, it’s pretty tough to judge that because there’s so many things going to it. So if you’re doing it for the first time, you probably want to consult with a CPA or run all the numbers very carefully, double check, triple check. I’ve been doing it for a while now for a few years so I know based off my situation with my mortgage and things like that. How much I make at my job. How much I make inside income. I know exactly what to do with my withholding. I’m always conservative with my assumptions so that at the end of the year I usually end up getting money back instead of having to owe money because I don’t have to pay any fines or penalties or anything like that.
Okay. So that’s how estimated taxes work for a 1099 payments. Now, let’s move on to deductions for Rideshare drivers. This is probably what you guys are all here for. Everyone, whether you’re filing personal or business taxes or anything, everyone wants to deductions. Everyone knows deductions are good thing because it means you’re going to pay less in taxes. But I’m going to give you guys a quick definition from the IRS website. “In order for a business expense to be deductible, it must be ordinary and necessary for a business and it’s given industry.” So what that means is you can’t just go ahead and deduct everything. We’re going to talk a little bit about how they work and what you can deduct.
The first thing I want to explain is how deductions work. I think some people might get a little confused with deductions, credits. Deductions and credits are very different. A credit is pretty much the best thing you can get. A credit means that you’re going to get that actual money. So if you get a $1000 credit, that means that you get $1000 in your pocket. Now, that’s a good things. But with a deduction, a deduction isn’t quite the same way. A deduction means that you get to deduct that amount from your income. So that income that you don’t have to pay tax on, that’s your savings. So let’s say I made $10,000 last year and I have $1000 worth of deductions. Now, I didn’t save $1000 in my taxes. I save whatever my tax bracket is times that $1000.
So you guys might have heard this term throwing around, “marginal tax bracket.” So marginal tax bracket is the highest tax bracket that you’re in. We have our progressive tax system in the U.S. What that means is that when your make zero to $10,000, you pay a 10% or whatever it is; $10,000 to $25,000, you pay 15%. I can go ahead and link to the actual federal and state table so that you guys can see where you’re at. The good thing about the deduction though is it comes off of your marginal tax bracket. So if you’re making 60,000 bucks and you’re in a 25% federal tax bracket, that means that a $1000 deduction is going to be $1000 times 25%. It’s going to save you $250 in taxes. Not too bad.
There’s a lot of reasons why Rideshare income or self-employed income and owning your own business is a good thing when it comes to deductions. Because with the regular W-2 job, you get your income, you get paid and you don’t get to deduct anything. You can deduct personal things like mortgage expense, your mortgage interest and charity and all that kind of good stuff but you don’t get to really deduct anything from your job.
Now, the good thing about Rideshare driving is there’s a lot of things that are deductible. It can really be valuable for people in certain situations. If you have one person with a high income and then the other person with a low income, your that low income person. It’s going to be in under married, and that low income person is going to be giving tax at marginal tax bracket. I’m sure a lot of you married couples out there may have experienced that when one person makes a lot more than the other, that second person who’s not making as much as their income is taxed much higher, that marginal tax bracket. So in some cases, it doesn’t even make sense for them to work anymore. With something like Rideshare driving though where you get to deduct a lot of that income, it becomes a huge tax saving because now you’re saving at your marginal tax bracket. I don’t want to get too much more technical than that.
The next thing I want to talk about is record keeping. When you have your own business, record keeping is hugely important. One of the big things that I see over and over is people asking about the mileage or its actual expense. Now, I’m going to link to the IRS topic on it but from the IRS website. For mileage, you basically have two options when you take deduction for the miles that you drive for your business. You can take the mileage deduction. That basically means that for every mile you drive. you get to deduct ¢56.5 per mile. To use the standard mileage rate, all you have to do is own or lease your car. It’s pretty straightforward. For every mile that you drive, your basically just get to deduct ¢56.5 from your income.
Now, the actual expenses is where people get confused a lot. To use this method, you basically have to determine what it actually cost to operate your car for the portion of the overall use of the car that you are using it for business. That can include all of your gas, all of your oil changes, repairs, tires, insurance, licenses that you might need, registration fees and depreciation and lease payments. So basically, all of those things that are attributable to the portion of the miles that you drive for the business.
Now, most people want to know what’s better. What’s going to give me the highest deduction? Luckily, you can calculate both. You can keep track of both and figure out at the end of the year what’s going to give you the higher deduction. In my personal experience, I’ve always, always, always found that mileage wins out especially in Rideshare when you actually have to take the actual expenses.
You have to attribute the amount of time that you spend your car for personal and business use. So even if you’re getting a bunch of oil changes and spending a bunch of money in gas, you can’t go and say “All right. That $500 a month that I spent is a deduction for my business.” Because you have to calculate how much you use it for business use and how much you use it for personal use. So if you use your car half the time for Lyft driving and half the time for going to your regular job, only 50% of your actual expenses are deductible. So you can see how it adds up quickly but you don’t always get to take the whole deduction, not to mention that keeping track of actual expenses is a lot of work.
I think that if you were to consult with other people and businesses or CPAs, they’ll tell you that the mileage deduction is usually what you want to take. I mean, when you think about it, ¢56.5 per mile, that deduction, that’s what the IRS is saying, your car it cost to run your car. We know that it definitely does not cost that. If it cost ¢56.5 per mile to operate our car, we wouldn’t be making a ton of money.
Some other deductions that you can take are things like parking fees and tolls. Anything that’s attributable to your business use or those types of things not related to maintenance of the car are separately deductible so it doesn’t matter whether you use the standard mileage rate or the actual expenses.
Now, I want to talk a little bit about how to maximize your mileage deduction. We know now that the mileage deduction is pretty valuable. It’s going to offset our income by ¢56.5 per mile. So if we go out and make $100 and we drive a hundred miles, then we only have to pay taxes on 100 minus $56.5. That’s only $43.5 that we have to pay taxes on. But we definitely didn’t spend $56 to maintain our car so that’s kind of a real benefit of this mileage deduction. With my rental property, I’ve looked into things like this in the past. Anyone out there who owns a rental property probably knows about depreciation and how that’s probably one of the best things out there in real estate.
As a rental landlord, we all know that depreciation, we call it a phantom expense. Because as you guys all know, houses actually go up in value. There are some really cool things I’ve written about them in the past on some other articles on some of my other websites that you can do with depreciation and increasing your phantom expenses, things that that don’t necessarily cost you money but they will give you a deduction. Now, that my mileage deduction isn’t quite a phantom expense but it definitely benefits you. Because like I keep saying, it doesn’t cost ¢56 a mile to operate your vehicle.
So the big question that comes up with this mileage deduction is when do you start and stop your mileage count? Now, there’s definitely different degrees and there’s not going to be one right answer to this question. I’m going to tell you guys what I do and why I do it, and then it’s going to be up to you to decide what you guys want to do. Obviously, consulting with your CPA or tax professional. The thing is you just want to understand why you’re doing whatever you’re doing because you’re going to get different answers. I can guarantee it if you go to different CPAs on this question.
Now, I’ve taken this deduction in the past for jobs I worked. Actually, with my rental property, there’s a lot of people that they deduct their mileage when they drive to their property and things like that. So all of these things apply and you just have to apply the same IRS rules to different situations.
Now with the Rideshare driving, it’s such a new and innovative platform for transportation. There’s going to be a lot of more gray areas than even in normal. There’s already a ton of grey areas in the IRS code. So basically, the least aggressive thing that you could do would be to only count the trips driving for Uber and Lyft. So this is going to be super easy to keep track of. Uber and Lyft will send you summaries. In their daily, weekly summaries, they’ll you how many miles you drove but the miles you drove that they send you are when have a passenger in the car. Now, if you want to be more aggressive, I think that since you’re driving, when you’re driving to a passenger, the second you leave your house, that if you consider yourself working for Uber and Lyft. which I do, I consider the second that I leave my house that I’m now working for Uber and Lyft.
So on my taxes, I’m going to say that as soon as I leave my house, I’m now on the clock, I have my app my app on and all of those miles are now deductible. So if I’m driving to a passenger, if I’m just driving around looking for passengers, as long as I’m doing something related to my business, of course as a Rideshare driver, everything that you’re driving is related to your business. So that’s going to be a more aggressive option.
Normally, you can’t deduct miles for computing to or from your workplace. So if I had my own business and I worked at an office and I drove there and back every day, even if it was my own business, I’m not allowed to deduct those miles. But if I go to visit with client, meet a client for lunch or something like that, now since I’m not going to my normal workplace, now those miles are deductable. Now with Lyft and Uber, there really is no work place that you go to everyday. Your home is like your home place, your home office, right? So the second you leave your house, you’re not commuting, right? You’re going to a different place every time. So that’s why I consider those miles deductable.
Next thing is a tip that I learned from my rental property because I have a property down in San Diego and I leave in Orange County. Obviously, I have to go down there to rent it out, work with maintenance guys and things like that. Of course, the main point of my trip was to visit my rental property. So those miles, since my home base, my home office is what I use for my rental property, when I drive to my property, those miles are all the deductable. How that applies to Lyft and Uber is I’ve think of situations where I have actually done this. Since I live in Orange County, I drive up to L.A. once in a while here and there to drive for Lyft and Uber. My rationale, my reasoning behind that is that you make more money driving up there.
In my case, I’m going to go ahead and deduct the miles as soon as I leave my house and drive up to L.A. That’s 45 miles right there. Obviously, this is where it gets into a grey area. When you go and ask your CPA, you should ask them and say, “Hey, what should I do? Should I count these miles when I leave my house? What if I drive to L.A.?” I think it definitely, I mean, if the IRS comes back and challenges me on that. I think that I have a pretty good reasoning behind it because you can make more money in LA. So by me leaving my house, I’m going to a different place to work, and now I’m basically trying to improve my business, trying to make more money.
If you wanted to be safe, maybe you turn your app on when you leave your house and do a couple of rides as you go up to a L.A. But like I said, this is a pretty big gray area. The IRS could come back and say, “Oh, no. You’re crazy. We’re not going to let deduct all these miles. When you drove to L.A., you could have just drove in Orange County.” But I think from my personal situation, that’s what I’m going to do.
All right. So now you guys know exactly how I’ll be doing with my taxes this year. All the deductions I’m going to take, which miles I’m going to deduct? The next thing and the last things actually that I’m going to talk about is how am I going to keep track of all these stuff. As you can probably tell, there is a lot of to keep track of. That’s the good and bad part about running your own business where the W-2 normal day job, they can keep track of almost everything for you. But when you run your own business, you have to take care of all that back-end stuff in tracking. It’s definitely more work but I think it’s definitely worth it for all the reasons that everyone loves driving for Uber and Lyft, the flexibility and the pay and all of that good stuff.
So I’ve actually been trying out a few apps over the past few weeks just seeing for my own research and then for you guys so I could tell you which one I like best. A couple of apps recommended to me by other drivers and other people online and the one that I actually decided that I like the most is called Expensify. The cool thing about Expensify is that it’s like the all in one tool. You can take pictures of receipts. You can start and stop your mileage based off GPS, your odometer or manual entry. You can add expenses manually. You can create this cool reports. They have a paid option. I haven’t really explored the paid option yet. But so far, everything in the free version is all that I need. I’ve only been using it for a couple weeks. But to be honest, the biggest problem I’m having is just remembering to start and stop my mileage. I keep on forgetting it.
It’s easy to take pictures of receipts and add expenses and stuff like that but I have more of a problem starting and stopping the mileage. Another app out there is called TripLog. I use that for a week or two and I didn’t like the interface. It seems a little clunky. It wasn’t super intuitive. I mean, obviously these apps are all free so it’s pretty easy try them out and see which one you like best.
One other app that I actually use for my other businesses is called Wave Scanning Receipts. I used that for a little bit and it’s basically just a simple receipt scanner. I wasn’t too impress with it. The last thing that you can do and it’s what I do in parallel with Expensify is the Excel spreadsheet method. Just like it sounds, it’s pretty simple. You create your own Excel spreadsheet and track whatever you want to track. You don’t need to be an Excel wizard or anything like that because the things you’re tracking are pretty simple. You just have to be diligent about tracking everything. So those are kind of my tips for tracking your mileage and expenses. Definitely give Expensify a try and let me know what you think.
Okay. Wow, that was a lot of information out there on taxes. Hopefully, I kept you guys interested. I wanted to make sure that taxes, honestly, for most people, they are a boring subject. But for whatever reason, I really enjoy reading about taxes. To be honest, I enjoy figuring out how to pay the least amount of taxes legally and push whatever limits I need to push to figure out everything there is about taxes. I think that if you want to do your own research and information, there are really only two things you need to get good at doing your own taxes. You just need some time and you’d be able to read all the documents. Everything that I’ve learned about taxes is either available cheaply online or through all the IRS publications, and then you have to have an interest in it. I mean, if you’re not interested in your taxes, then it’s going to be tough.
At the same time though, I always tell people nobody cares more about your money than you do. So if you think going to a CPA, that they’re going to go and hunt for every single deduction and say, “Oh, you should deduct these 12 miles because it’s going to save you $5.” Or maybe, “Deduct this or deduct that, it’s going to save you 50 bucks.” For other people, even if they are CPA, it’s not worth their time always. But for you, when you see a direct correlation to everything that you save, it’s in your best interest to at least have a basic understanding of how taxes are going to work. I know a lot of people like to just push their papers of to their CPA or tax accountant and let them work their magic. But what I found especially is that you really want someone who is specialized.
Taxes are usually not necessarily complex but there’s just a lot of information out there. So whether you decide to go to a CPA or not, you want to understand all of your options and what the grey areas are. A good CPA will be able to tell you, “Hey, here’s where you’re at low audit risk. Here’s where you should go for more of a deduction.” Or “Here is where the risk might not be worth the reward.”
I think the biggest takeaway from this podcast is that you’re going to get different answers from CPAs on the same question, especially the mileage question and things like that where there’s different levels of aggressiveness that you can push especially with Rideshare. This isn’t like a rental property. Rental property is a business that’s been around forever. This is Rideshare. This thing is brand new. I mean, I don’t even know of any CPA specializing in Rideshare. It’s probably a big opportunity if any of you guys out there are listening and CPAs and you want to take advantage, you should probably look into that. But ultimately, it’s going to be up to you and your CPA to decide how aggressive you want to be.
Does the thought of dealing with IRS scare you? I mean, if the last thing on earth you want to do is deal with the IRS, then maybe you should be more conservative. But even then, you’re still at risk. Most people aren’t going to get audited if they make under whatever amount. You can find the statistics online. But at the same time, there’s always the possibility. My personal strategy is I’m going to be as aggressive as possible. I mean, in the IRS’s eyes, I don’t make much money. I’m nowhere near $100,000. So for them to really look into my taxes or anything like that, there’s not going to be a high reward for them. I’m definitely low risk for an audit. Generally, most of the time, if they don’t agree with your deductions and they come and ask for penalty or whatever. they’re not going to make much money off of you. They’ll probably going to lose money actually with all the time they needed to pay the IRS agents.
I have never been audited or had this happened to me. But from what I hear from talking to people in the industry, it’s that most audits are done by basically substantiating information. So it won’t be a full-blown audit although that can happen. But most of the time, they ask you to clarify or prove this or prove that. As long as you are taking the deductions that you’re entitled to, you should go right ahead and do it. Make sure that you have everything documented. If you drove 5,000 miles but you didn’t document any of it, it doesn’t matter if you actually did it. The IRS needs to see proof whether it’s a log or a screenshot of your odometer or whatever you think is suitable.
Me, I want every penny that I’m entitled to. Honestly if its five bucks, I’m going to go for it because I think that I’m not going to pay a penny more in taxes that have to. If I’m entitled to a deduction or I’m entitled to a credit, I’m going to go and take it. For me, it’s more of a principle. I also know what the IRS is going to do with my money. They’ll go and give it to the government, and that’s a topic for another day. But one quick note I wanted to mention just off hand is I did see this story a couple of weeks ago about IRS scam that was going around that you guys might want to be careful of. The IRS only corresponds via mail. They never email or phone call. You guys might have heard this story in the news the other day. So just keep that in mind that the only correspondents you’ll get from the IRS is through the U.S. Postal Service.
So that pretty much brings us to the end of the show. Go ahead and check out the show notes. There are a lot of links that I mentioned, a lot of IRS publications and things like that. If you guys wanted to learn a little bit more about it, I’ll also link to a couple cool resources that I have used in the past for other deductions, tax research and things like that.
The show notes can be found at www.therideshareguy.com/episode3. Go ahead and leave a review on iTunes, if you wouldn’t mind. I’m definitely trying to see if I can get as many reviews as possible from all of my great listeners. You can also subscribe to our email list on our site. That way, you’ll be able to get notified of new articles, podcasts and all of that good stuff. If you guys have any questions, you know how to contact me on social media email. You can email me at harry[at]therideshareguy.com. All right. Well, with that, I hope you guys have a great week. I’m looking forward to doing the next podcast. All right. See you guys.