If you drive for Uber or Lyft, you have two options for deducting your vehicle expenses. Drives can choose to take the standard mileage rate or Section 179 deduction. The standard mileage rate is the most common, but it’s not always the best option. In fact, you might be better off choosing another method.
About Section 179
Under Section 179, vehicle costs are deductible as expenses if you meet certain criteria.
First, you must have purchased your car in the calendar year of 2019. Also, you must use your car for business at least half of the time.
For 2019, the maximum Section 179 expense deduction is $25,000 for cars over 6,000 pounds. However, typical passenger cars fall under that limit. For vehicles under 6,000 pounds, first-year depreciation is capped at $18,000.
Standard Mileage Rate
For 2019, the standard mileage rate for the use of your vehicle is 58 cents per mile driven for business.
You may not use the standard mileage rate if you:
●Claim Section 179 depreciation for the first year that your vehicle is in service
●Deduct your actual car expenses for that year, including gas, routine maintenance, insurance, or vehicle registration fees
●Use five or more cars at the same time (such as in fleet operations)
●Claim a special depreciation allowance
Why Section 179 Is a Better Option
If you just purchased a new car, Section 179 could give you a larger deduction. For example, the first-year depreciation basis for a $50,000 new car placed in service during 2019 and used 100% for business would be $50,000.
This would result in a maximum depreciation deduction of $3,160. With the election of the special depreciation allowance, this amount increases to $11,160 for the year.
Section 179 vs Standard Mileage
In contrast, you’d have to drive over 19,200 miles in to claim $11,160 worth of deductions with the standard mileage rate. Keep in mind that you can’t count any non-business miles either. That includes driving to/from your home and your first/last pickup locations. Also, you can’t deduct the actual expenses for your car.
Ultimately, the best method depends on your vehicle and how much you drive. The standard mileage rate usually offers greater deductions, but claiming Section 179 depreciation can be effective for some drivers. For a closer look, get in touch with a 1099 bookkeeper and receive professional insight on your unique tax opportunities.