~$.50 a mile isn't a made up number, it's what the federal government has calculated as the cost of driving for business purposes. Actual value is 53.5 cents a mile.
I don’t think it’s necessarily appropriate to use that figure to calculate your actual costs as an Uber driver, especially if you’re not driving full-time. It seems like the 53 cent figure is amortizing the entire cost of the vehicle, fuel, and maintenance over its entire lifetime. If you’re in college and just drive for Uber on occasional weekends, it doesn’t make sense to include all of the fixed costs of the vehicle in your profit calculations. Note that the IRS figure for variable costs per mile is 17 cents.
"If you’re in college and just drive for Uber on occasional weekends, it doesn’t make sense to include all of the fixed costs of the vehicle in your profit calculations."
But it does make sense to prorate the portion of those fixed costs associated with the Uber use. Failure to do so is a major business mistake, since you will have to replace the vehicle, etc., sooner than you would otherwise.
Which means something like a conservative 53¢ per mile.
You have to prorate some portion of the fixed costs, but it seems like the 53 cent figure is assuming that the entire lifetime of the vehicle is used for business.
53¢ is the US government's ("We're here to help you!") estimate of the total cost of an average vehicle divided by the lifetime of the vehicle as measured in miles.
If your vehicle's lifetime is 200,000 miles, and 10% of that is assignable to Uber, that is 20,000 miles or $10,600, which is 10% of the estimated lifetime cost of $106,000.
If you try to break that up into different "buckets" ("I need a car anyway, so I shouldn't apply the fixed costs to my Uber income"), you end up with a car that effectively only lasts 180,000 miles and therefore your fixed costs for the car for personal use are artificially higher. It is the same thing as if you had decided "I would just burn that gas anyway" and didn't count fuel costs against your Uber income.
I don't necessarily disagree with you but I certainly couldn't afford an "Uber eligible" car when I was in college. Are college students overspending on cars just to drive for Uber?
That would be a terrible idea. It obviously violates Uber's driver's agreement so you risk getting kicked off the platform or at the very least confusing your passengers who are looking for a red ford focus and you're driving a white Chevy Cavalier. Not only that but if you get into an accident with a rider you're going to be in a world of hurt. Uber's insurance company would certainly deny the claim and so would yours, assuming your insurance policy covered ride sharing in the first place.
No. Your license plate and vehicle description are shown to each passenger. If they don’t match, you’re going to get reported pretty quickly. Also, if your car is dumpy, people will report you.
Keep in mind that the IRS has a number of incentives in calculating that number, and "accurately reflect the cost of driving" is not the dominant one.
Like every other safe harbor in the tax code, the primary purpose is "reduce the cost and uncertainty of tax administration." The IRS has to review 1~2% of all firms in the economy every year; if they pick a number too small, many of those firms will have hundreds of extra line-item entries in their books to satisfy the Actual Cost method. The IRS truly does not want to overly burden taxpayers. They also don't want to burden their examiners over what, for the overwhelming majority of small businesses, is a trivial amount of money -- the net difference in taxes between Maximally Accurate Car Costs and the 53.5 cents/mi approximation is likely on the order of a few hundred dollars, and that is below the care floor for business returns.
So how did they arrive at 53.5 from 54 if it is one way or another for them?
You are talking about $/mile. Moving that figure up or down a penny quickly approaches a billion on the macro scale and their overarching incentive is keeping it down.
I mean, I will take this figure any day over someone higher up the thread essentially arguing it's much less because all Uber drivers have cars anyway that they finance through (?) so accounting it towards the Uber income doesn't make sense (??).
This is a subtle and difficult thing, but I promise you it is true: the IRS is not primarily scored on revenue generation. Their incentives are (approximately) hire more IRSians, minimize complaints to Congress regarding the tax code, minimize complaints to Congress regarding the IRS specifically, efficiently administer taxes, and generate revenue, in order.
There are a lot of changes that are within the IRS' authority to make which would be net-positive from a tax collection perspective and which it would not do and, if it did, would be undone from above. One is "radically increase the number of audits administered."
Ah, fair enough - I was just wondering because I've known Uber drivers that do exactly this, and have given me advice on where to find cheaper rental cars.
All consumer rental car contracts in the US include a provision that disallows the usage of the vehicle for commercial purposes. Additionally, most personal vehicle insurance prohibits the use of the insurance for commercial ride sharing activities without a special waiver.
So as soon as that first fare is picked up (if not sooner), then the renter is in breach of contract. Any insurance from the rental agency is now void, and without special personal insurance waivers, the driver is now driving uninsured.
That is both illegal, and all liability will now be 100% on the driver.
So if someone is going to do that, then they need to calculate in the risk of an accident/arrest and all of the full liability that goes with that.
Uber insures drivers in the US while they are giving a ride. However, it probably wouldn't cover you if you're breaking your rental contract at the time of loss or wasn't the car Uber approved.
https://www.irs.gov/newsroom/2017-standard-mileage-rates-for...
Students are usually under 25 thus largely are unallowed to rent cars.
I doubt using a rental car for this type of business is allowed under the terms of a rental contract or under Uber's rules.
Insurance isn't free.