Paying yourself to Uber yourself

[TaxyTax]

Assume you are a business owner with a deductible travel expense for a temporary contract job. You could deduct the uber trip. However, let's also assume that the same individual is an uber driver. Can the business owner (same person) deduct the uber ride delivered by the driver (which is the same person as the business owner)? 

[rjs]

The owner can't deduct an expense unless he actually paid the expense. If his first business didn't actually make a payment, then there is nothing to deduct.

But being an Uber driver is a business, too. So what you are really saying is that the owner has two businesses, and one business buys a service from the other business. If he does that, the first business could deduct the payment that it makes to the Uber driving business. But the Uber driving business has to report that payment as income. The net result is a wash. All you are doing is moving money from one pocket to another pocket in the same pair of pants. The net income of the first business is reduced by the cost of the trip, and the net income of the Uber driving business is increased by the same amount. If the ownership of both businesses is the same, it will not make any difference in the total amount of tax that the owner has to pay.

[NCperson]

@TaxyTax - what would be the point if you could do it?

presumably the revenue would equal the expense and have no tax implication...

if the revenue would not equal the expense, help me understand how that could occur. 

[TaxyTax]

Hi @NCperson 

There’s a hidden impact of vehicle resale value loss. With the exception of Teslas, every car loses value And in some cases depreciates faster than the loan balance and results in a negative equity situation.

Assuming a business has valid trip expenses due to temporary work assignment away from his/her home office location. She would be able to write off the cost of Uber. That tax savings is X.

If the same human also has an Uber business, then the revenue earned minus expenses is her taxable earnings, Y. However, depending on terms of vehicle loans and gas prices, etc. The net income from an Uber business could be negative and if so, would justify this. Meaning X-Y = <0

If the same human is also the Turo host that rents the vehicle to the Uber driver, then I think it adds to the ability to try and capture as much of the “true cost” of vehicle ownership and thus reducing the Delta between vehicle purchase price VS vehicle sales prices so that you’re not burning money. 

purchase price in year 1 is $10

sale price in year 3 is $5 at FMV

loss is $5 via depreciation, etc

In the same time, Uber driver and Turo Host would earn negative $3.

So loss in year 3 is reduced from $5 to $3.   

[NCperson]

@TaxyTax - that is a lot of complexity

let me see if I understand

Left Pocket charges Right Pocket for a Lift to a Client from the Office.  Revenue and Expenses match. There is no benefit here,

Three years from now, Left Pocket Sells the vehicle at a loss (market value less cost basis net of depreciaion) and saves money on taxes because Left Pocket can right off the loss.

Can i simplify this? 

Independent Business Owner buys a car to shuttle from Office to Client.  All the costs of owership are tax deductible (and the same as Left Pocket). 

At the end of 3 years, the car is sold at a loss (let of depreciation) for the same price that Left Pocket could have sold the car for,......and that loss is tax deductible,  

Same benefit is avialable without the complecity of Left Pocket and Right Pocket

[rjs]

So what you are trying to do is a lot more complicated than you indicated in your original question.

You haven't said what type of entities the three businesses are. If one or more of them is a disregarded entity, that's going to affect the tax treatment of transactions between the businesses. The IRS is going to look skeptically at transactions among multiple businesses that all have the same owner.

You need to talk to a tax lawyer about this.

[tagteam]

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@TaxyTax wrote:

There’s a hidden impact of vehicle resale value loss.

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You have not considered the impact of the related party rules, which appear to directly affect your hypothetical.

See https://www.law.cornell.edu/uscode/text/26/267

[SweetieJean]

This almost sounds like an academic assignment, or a paper someone is writing,

[fanfare]

If you are prowling as an Uber driver , you can't pick yourself up as a passenger since you are in the driver's seat.

[pk]

@TaxyTax , this is self-dealing -- you are the buyer and also the seller of a service.   Even if you had  good records and were able to prove this was all above board, the IRS would have a lot of fun proving .....

Don't do it --- if you want uber  services, get another uber driver to drive while you enjoy the ride.