If you still have the vehicle then do not check the box where it says I stopped using the vehicle.
The IRS offers two ways of calculating the cost of using your vehicle in your business: 1. The Actual Expenses method or 2. Standard Mileage method. Each method has its advantages and disadvantages, and they often produce vastly different results. Each year, you’ll want to calculate your expenses both ways and then choose the method that yields the larger deduction and greater tax benefit to you.
If you drive for a company such as Uber, the business use of your car is probably your largest business expense. Taking this tax deduction is one of the best ways to reduce your taxable income and your tax burden.
This is doubly important because you have to pay two separate taxes on your ridesharing income—once for your income tax and once for your self-employment tax (the amount you contribute as a self-employed individual to Social Security and Medicare). Both taxes are based on the net profit of your business, which can be reduced by taking a deduction for the use of your car for your business.
The IRS offers two ways of calculating the cost of using your vehicle in your business:
- The Actual Expenses method or
- Standard Mileage method
Each method has its advantages and disadvantages, and they often produce vastly different results. Actual Expenses might produce a larger tax deduction one year, and the Standard Mileage might produce a larger deduction the next.
If you want to use the standard mileage rate method, you must do so in the first year you use your car for business. In later years you can choose to switch back and forth between the methods from year to year without penalty. Each year, you’ll want to calculate your expenses both ways and then choose the method that yields the larger deduction and greater tax benefit to you.
