# Lease a car to Uber driver?



## songoku (Nov 27, 2016)

Dear @UberTaxPro ,

I just want to ask a question about the tax situation if I lease out my car to an Uber driver? Let say I'm building a fleet and lease it out to fellow drivers that need cars to drive. I have been searching about this on the forum.

@can I deduct the mileage that driver driven with the IRS?
@Insurance?
@Oil change and maintenance?
@ What software can I use to keep track of these expense and that I can properly file tax at the end of the year?

Thank you in advance.


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## Yulli Yung (Jul 4, 2017)

songoku said:


> Dear @UberTaxPro ,
> 
> I just want to ask a question about the tax situation if I lease out my car to an Uber driver? Let say I'm building a fleet and lease it out to fellow drivers that need cars to drive. I have been searching about this on the forum.
> 
> ...


I definitely would not do it. But to answer your question, no you cannot deduct the drivers expenses which include insurance, gasoline, mileage, maintenance and so forth.


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## songoku (Nov 27, 2016)

Yulli Yung said:


> I definitely would not do it. But to answer your question, no you cannot deduct the drivers expenses which include insurance, gasoline, mileage, maintenance and so forth.


Are you sure about this?

Let say driver pay me $500 per week to rent my surburban ( insurance included). Driver can deduct his expense + gas+ rental payment.

What can I deduct from $2000 per month he pays me for the rental. I take care of the car insurance + maintenance.

Thinking about doing that but I need to get the right info to make it right at the beginning?


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## kingcorey321 (May 20, 2018)

your NOT going to profit .
yes you can claim rental gas insurance . this is nothing you still will be paying rental charges and state and federal tax.
your making less then a dollar a mile already not including your rental and gas. will say a person rents a car drove uber full timea fter gas rental fees there profiting about 8 bucks an hour minus income tax so actual take home will say a person worked 12 hours a day 7 days a week with this rental 84 hours a week .672 dollars gross after rental and fuel . tax is about 85 bucks per 400 . so thats a profit of 540 for 84 hours .actual profit of 6.42 per hour after tax. is this worth it to you ? my data is from experience.
a rule i set up i no longer drive uber x or lyft its not worth it . i wont even turn the app on.
i only deliver food if the delivery pays me less then a dollar a mile its not worth it .


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## songoku (Nov 27, 2016)

kingcorey321 said:


> your NOT going to profit .
> yes you can claim rental gas insurance . this is nothing you still will be paying rental charges and state and federal tax.
> your making less then a dollar a mile already not including your rental and gas. will say a person rents a car drove uber full timea fter gas rental fees there profiting about 8 bucks an hour minus income tax so actual take home will say a person worked 12 hours a day 7 days a week with this rental 84 hours a week .672 dollars gross after rental and fuel . tax is about 85 bucks per 400 . so thats a profit of 540 for 84 hours .actual profit of 6.42 per hour after tax. is this worth it to you ? my data is from experience.
> a rule i set up i no longer drive uber x or lyft its not worth it . i wont even turn the app on.
> i only deliver food if the delivery pays me less then a dollar a mile its not worth it .


Thank you very much but it doesnt answer my question at all. Why would people rent out TLC cars to drivers if they couldn't make profit from the investment, considering they pay upfront close to $50k for each Suburban.


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## UberTaxPro (Oct 3, 2014)

songoku said:


> Dear @UberTaxPro ,
> 
> I just want to ask a question about the tax situation if I lease out my car to an Uber driver? Let say I'm building a fleet and lease it out to fellow drivers that need cars to drive. I have been searching about this on the forum.
> 
> ...


@can I deduct the mileage that driver driven with the IRS? _Yes if you elect to use the mileage method and operate less than 5 vehicles, no if you elect or have to use the actual expense method._
@Insurance? _No with the mileage method, yes with actual expense method_
@Oil change and maintenance? _No with mileage method, yes with actual expense method_
@ What software can I use to keep track of these expense and that I can properly file tax at the end of the year? _Quickbooks, you'll need to pay attention to taxes a bit more than once a year. The help of an accountant might be a good idea to at least get you started out correctly. _



songoku said:


> Are you sure about this?
> 
> Let say driver pay me $500 per week to rent my surburban ( insurance included). Driver can deduct his expense + gas+ rental payment.
> 
> ...


Yes, the way you set this up in the beginning is very important.


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## oldfart (Dec 22, 2017)

songoku said:


> Dear @UberTaxPro ,
> 
> I just want to ask a question about the tax situation if I lease out my car to an Uber driver? Let say I'm building a fleet and lease it out to fellow drivers that need cars to drive. I have been searching about this on the forum.
> 
> ...


I'm considering doing this too
My thought is that the driver can deduct the lease payments and you would declare the lease payments as income.

As to tax deductions... if you do all the maintenance and provide insurance and pay for gas I think you would get to deduct the standard milage deduction.but if you split expense, you each can deduct your actual expenses.

I'm no accountant so I will be consulting an accountant before I buy the first car

I will also consider leasing the cars to two drivers. A day shift and a night shift ie keep them running 24 hours a day


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## songoku (Nov 27, 2016)

UberTaxPro said:


> @can I deduct the mileage that driver driven with the IRS? _Yes if you elect to use the mileage method and operate less than 5 vehicles, no if you elect or have to use the actual expense method._
> @Insurance? _No with the mileage method, yes with actual expense method_
> @Oil change and maintenance? _No with mileage method, yes with actual expense method_
> @ What software can I use to keep track of these expense and that I can properly file tax at the end of the year? _Quickbooks, you'll need to pay attention to taxes a bit more than once a year. The help of an accountant might be a good idea to at least get you started out correctly. _
> ...


Thank you so much for your valuable feedback. I am assuming there are 2 methods for tax write off.

@The mileage deduction is more suitable for UberX to maximize their incomes.
@actual expense. I'm going to do more research on these. Looks like it better for higher end rides and BlackSUV fleet owner or driver.

Meanwhile, if you have the time. Can you point out for me this example:

In ideal situation: I get paid 2000 per month from driver for my 2019 black Suburban...or $24000 a year. He can drive the wheel off if he would like too. 
With the actual expense method, what can I deduct from these expenses:

@For the $45k Suburban, I put a down payment of $20k and monthly payment is close to $500 per month in 5 years.

@Pay close to $400- $500 per month for a proper commercial insurance. The driver is insured under my policy.

@Maintenance cost: this is complicated but hopefully let put aside $100 per month.

@Vehicle depreciation, this is complicated but give the $45k truck 3 year of service which is $15k per year in depreciation. I dont think he will drive X considered the gas expense but who know. Hopefully it gives me 4.5 years of service equal to potential income $100k from the Truck. How much can I deduct from my income?

The math is kinda off here. But I'm doing more research. Meanwhile, please shine me some light so I can get it start asap.

Bests,


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## MoreTips (Feb 13, 2017)

Definitely bet on the drivers actually driving the wheels off of it. Any rented or leased vehicle's will get beaten much more than ones personal vehicle.


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## UberTaxPro (Oct 3, 2014)

songoku said:


> Thank you so much for your valuable feedback. I am assuming there are 2 methods for tax write off.
> 
> @The mileage deduction is more suitable for UberX to maximize their incomes.
> @actual expense. I'm going to do more research on these. Looks like it better for higher end rides and BlackSUV fleet owner or driver.
> ...


@For the $45k Suburban, I put a down payment of $20k and monthly payment is close to $500 per month in 5 years._ Cost of the vehicle is deductible not the payments. The first year could be up to the full $45K using the section 179 deduction depending on the vehicle and what it is used for. For research: vehicles and section 179. This is the tempting part about using the actual expense method but be warned that you'll pay dearly for this after the first year. Also, if you stop operating this business before 5 years you'll have to re-capture (pay back) much of the write off you took in year 1. Be very careful about this. _

@Pay close to $400- $500 per month for a proper commercial insurance. The driver is insured under my policy. _Under actual expense method business insurance is 100% deductible _

@Maintenance cost: this is complicated but hopefully let put aside $100 per month. _Actual money you spend on maintenance is deductible, not the budgeted amount._

@Vehicle depreciation, this is complicated but give the $45k truck 3 year of service which is $15k per year in depreciation. I dont think he will drive X considered the gas expense but who know. Hopefully it gives me 4.5 years of service equal to potential income $100k from the Truck. How much can I deduct from my income? _If you use section 179 and or bonus depreciation you'll be taking 5 years worth(or close to it) of depreciation in the first year. Your deductions including depreciation will be limited after the first year using the actual expense method. _


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## songoku (Nov 27, 2016)

UberTaxPro said:


> @For the $45k Suburban, I put a down payment of $20k and monthly payment is close to $500 per month in 5 years._ Cost of the vehicle is deductible not the payments. The first year could be up to the full $45K using the section 179 deduction depending on the vehicle and what it is used for. For research: vehicles and section 179. This is the tempting part about using the actual expense method but be warned that you'll pay dearly for this after the first year. Also, if you stop operating this business before 5 years you'll have to re-capture (pay back) much of the write off you took in year 1. Be very careful about this. _
> 
> @Pay close to $400- $500 per month for a proper commercial insurance. The driver is insured under my policy. _Under actual expense method business insurance is 100% deductible _
> 
> ...


Thank you so much.

@How should I use section 179 if I plan in business for 5 years?
@ With 3 vehicles in the fleet, do have to register my business for the actual expense method? 
@ Let say driver quits after 6 months. Can I fill in the downtime to minimize the downtime? How would the tax situation be, if I'm a fleet owner and I pay for myself that way?
@ So many more questions, but I'm afraid you gonna be mad if I dont take it slowly.

Bests,

Goku.


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## UberTaxPro (Oct 3, 2014)

songoku said:


> Thank you so much.
> 
> @How should I use section 179 if I plan in business for 5 years?
> @ With 3 vehicles in the fleet, do have to register my business for the actual expense method?
> ...


@How should I use section 179 if I plan in business for 5 years_? Depends on many factors...we should talk or you should talk to another accountant about the best road to travel. _
@ With 3 vehicles in the fleet, do have to register my business for the actual expense method? _No_
@ Let say driver quits after 6 months. Can I fill in the downtime to minimize the downtime? How would the tax situation be, if I'm a fleet owner and I pay for myself that way?_ yes you can fill in anytime, you'll have 1099 income instead of rental income, not much difference other than you'll be working a lot harder._
@ So many more questions, but I'm afraid you gonna be mad if I dont take it slowly. HaHa! _You might get mad at tax time if you suddenly realize you haven't been keeping your books correctly! Also, it doesn't take long to get set up correctly so it shouldn't slow you down much. _


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## Uber's Guber (Oct 22, 2017)

songoku said:


> @Maintenance cost: this is complicated but hopefully let put aside $100 per month.


$1200 a year to maintain a Suburban that is having the shit driven out of it by somebody using it for rideshare?
Good luck with that.


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## songoku (Nov 27, 2016)

Uber's Guber said:


> $1200 a year to maintain a Suburban that is having the shit driven out of it by somebody using it for rideshare?
> Good luck with that.


Lol. The warranty could be a great help 1st year.


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## Stevie The magic Unicorn (Apr 3, 2018)

My points...

Your warranty won't last _*a year. *_

3 year 36,000 mile warranty?

try _*20 weeks*_

60,000 mile 3 year powertain warranty?

good luck getting _*35 weeks*_ or so.

And if you rent it out to someone who shares that car with their brother?

*Your 3 year warranty could get blown in as little as 90 days.*

Now let's assume your charging $500 a week to rent out that Suburban,

The high end uber fares are exceedingly rare, more than likely your driver is going to be trying to cover it on XL and X fares.

That $500 a week is $71.42 a day they have to cover.

Since rates constantly downslide that driver could easily end up spending 9-10 hours a day covering their rental and that gas hogs gas bill. (Let's assume $28.58 in gas per $100 earned) Then they would need another infinite hours to increase their pay to minimum wage. Sorry, but assuming they work 24 hours a day,

They might only make $240 with $70 to pay you, and $60-70 for gas, leaving them with all of $100 for 24 hours of work, or $4.50 an hour.

Your busines model is fundamentally flawed, there's simply no way to make enough driving uber to pay you what it costs to operate a vehicle and maintain it properly, and have the driver not *sue you into oblivion.

Oh and if you lease out a vehicle to full time drivers,

It won't last 5 years.*


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## LADryver (Jun 6, 2017)

UberTaxPro said:


> @can I deduct the mileage that driver driven with the IRS? _Yes if you elect to use the mileage method and operate less than 5 vehicles, no if you elect or have to use the actual expense method._
> @Insurance? _No with the mileage method, yes with actual expense method_
> @Oil change and maintenance? _No with mileage method, yes with actual expense method_
> @ What software can I use to keep track of these expense and that I can properly file tax at the end of the year? _Quickbooks, you'll need to pay attention to taxes a bit more than once a year. The help of an accountant might be a good idea to at least get you started out correctly. _
> ...


I am very sorry Ubertaxpro but you confused leasing with fleet. A fleet is owned and operated with related expenses but a lease is something else.

The expenses you face as a lessor include those that you spent to find the lessee, such as fees to a service that facilitates it, or advertising. Anything you actually do pay, like the insurance and maintenance. you can deduct on your Schedule C also. This includes registration, and everything that comes from your pocket. When you do drive the car you can take the Fed mileage rate. Because you are leasing you may qualify to use Schedule E instead.


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## UberTaxPro (Oct 3, 2014)

LADryver said:


> I am very sorry Ubertaxpro but you confused leasing with fleet. A fleet is owned and operated with related expenses but a lease is something else.
> 
> The expenses you face as a lessor include those that you spent to find the lessee, such as fees to a service that facilitates it, or advertising. Anything you actually do pay, like the insurance and maintenance. you can deduct on your Schedule C also. This includes registration, and everything that comes from your pocket. When you do drive the car you can take the Fed mileage rate. Because you are leasing you may qualify to use Schedule E instead.


From the OP post "Let say I'm building a *fleet *and lease it out to fellow drivers that need cars to drive." (bold added by me). As long as the OP is using less than 5 cars I don't see a problem here. Could you point me to some code that states otherwise?


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## LADryver (Jun 6, 2017)

Yes but what you missed was the fleet is as a word being misused for the purpose. He indicated that each of the vehicles would on their own be rented out. This is happening in Southern California that I know of where companies are supporting this activity. It isn't code, it is the activity. He describes the business model of Fair, and the supported models of Getaround, Hyrecar, and others.



oldfart said:


> I'm considering doing this too
> My thought is that the driver can deduct the lease payments and you would declare the lease payments as income.
> 
> As to tax deductions... if you do all the maintenance and provide insurance and pay for gas I think you would get to deduct the standard milage deduction.but if you split expense, you each can deduct your actual expenses.
> ...


If you are "leasing" or renting out a vehicle that you own, there is little control over "shifts" like that, but you are describing a business model very similar to taxicab companies. You should research the operating of those, if this is what you want to do. Otherwise the renter or lessee is entitled to the vehicle both day and night for the duration of the contract, if it is to be like rentals we know. Anything else and you are breaking new ground.



Stevie The magic Unicorn said:


> My points...
> 
> Your warranty won't last _*a year. *_
> 
> ...


Some car makers, and I know factually that Nissan does, adjust an original warranty by upselling it in finance. You could purchase a much longer warranty. Then you could purchase a good third party service contract.


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## Stevie The magic Unicorn (Apr 3, 2018)

LADryver said:


> Yes but what you missed was the fleet is as a word being misused for the purpose. He indicated that each of the vehicles would on their own be rented out. This is happening in Southern California that I know of where companies are supporting this activity. It isn't code, it is the activity. He describes the business model of Fair, and the supported models of Getaround, Hyrecar, and others.
> 
> 
> If you are "leasing" or renting out a vehicle that you own, there is little control over "shifts" like that, but you are describing a business model very similar to taxicab companies. You should research the operating of those, if this is what you want to do. Otherwise the renter or lessee is entitled to the vehicle both day and night for the duration of the contract, if it is to be like rentals we know. Anything else and you are breaking new ground.
> ...


They arn't going to sell you a 500,000 mile warranty

your on crack


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## LADryver (Jun 6, 2017)

Stevie The magic Unicorn said:


> They arn't going to sell you a 500,000 mile warranty
> 
> your on crack


Did I say they would? 500k miles? You're on crack.


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## Stevie The magic Unicorn (Apr 3, 2018)

LADryver said:


> Did I say they would? 500k miles? You're on crack.


Thats about what a car can do before it drops if properly maintained. That's how much a cab company would try to get out of a car to turn a profit.

My point is that there's no possible way a warranty will last, expensive repairs will become the norm after a year, probably less.

At the end of the day, (except for NYC where there is a cap on vehicles)

There's no upside for a driver to rent a vehicle to do uber with.

$76 a day X 225 miles =_ $168,888_ over 2,222 shifts, or the lifespan of the vehicle.

The reason taxi drivers do it (myself included) is that driving for a taxi company can get you better revenue than being a taxi driver on your own, also the $500 _a month_ for taxi insurance is about what I pay _in a month_ for taxi rentals because I only do like 7-10 shifts month.


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## UberTaxPro (Oct 3, 2014)

LADryver said:


> Yes but what you missed was the fleet is as a word being misused for the purpose. He indicated that each of the vehicles would on their own be rented out. This is happening in Southern California that I know of where companies are supporting this activity. It isn't code, it is the activity. He describes the business model of Fair, and the supported models of Getaround, Hyrecar, and others.


Yes I agree he did use the word fleet in a different sense than the IRS uses that word. The IRS considers a fleet to be 5 or more vehicles. Often times small fleets of 4 or less are mixed use, one day the owner drives and the next day it's leased (or rented) out for 8 hours then the owner drives again that night for example. I've researched this and can find nothing in the tax code or regulations to prevent the owners of these small fleets in mixed use from using the mileage method. In fact it would be against the IRS's own regulations to use the mileage method when the owner is driving and actual expense when the vehicle is rented out. We all know you can't do both with the same vehicle. IMO a safe harbor exists for 4 vehicle or less fleets to use the mileage method in mixed use situations otherwise the IRS wouldn't have defined "fleet" as 5 or more. Fair, Getaround and Hyrecar are not good comparisons because they are not mixed use business models.


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## LADryver (Jun 6, 2017)

The owner of the car needs to be the driver of the car, the one who does the lease payments, not the one collecting the payments. Here is a different situation. This questioner is asking, not if he leases and pays for a fleet of cars, but if he leases and is paid for a fleet of cars. I found an example for you. This smells like a Schedule E to me.

https://www.hyrides.com/
The only business model that would apply to what the questioner is asking directly is if he actually employs the driver and pays wages while driving and the company owns the car. Then the company bears all and deducts all expenses and plus is an employer of people with employment taxes to pay as well as wages. I do not see where profits come from. There is no ascertained profit motive.



Stevie The magic Unicorn said:


> Thats about what a car can do before it drops if properly maintained. That's how much a cab company would try to get out of a car to turn a profit.
> 
> My point is that there's no possible way a warranty will last, expensive repairs will become the norm after a year, probably less.
> 
> ...


I grew up with cabbies. They owned their cabs, fully medallioned in NYC. They raised families and owned houses with their cars. Nobody complained about profits or costs. They paid to a company even so, for the dispatch services, radio operated. Their cabs were their only cars. They drove them everywhere for personal reasons too.

They were different than the ones who rent cabs for the day, but there is a difference also between turning a profit and grubbing the maximum. They charge rent for those cabs. They make a profit from those cars. They get commission from the rides. They choose to make them last 500k. They house their own mechanics. When someone tells you that it takes 500k to turn a profit, just whisper in your head, "bullshit".


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## UberTaxPro (Oct 3, 2014)

@LADryver ... So for a 2 car operation (not a fleet in IRS terms) where the owner drives both vehicles and rents out both vehicles for random shifts whenever a driver is available, which method of accounting should be used by the owner for the 2 vehicles, mileage rate or actual expenses?


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## LADryver (Jun 6, 2017)

UberTaxPro said:


> @LADryver ... So for a 2 car operation (not a fleet in IRS terms) where the owner drives both vehicles and rents out both vehicles for random shifts whenever a driver is available, which method of accounting should be used by the owner for the 2 vehicles, mileage rate or actual expenses?


I do not view this as simple by any means but the car, or in this case two cars, first get split into two parts, assuming no personal use.

The deduction method variations occur differently when letting out rather than owning and operating. Schedule E car costs method choices exist only for use of a car to manage rental properties, not rental income from cars. An owner of a car rental agency, however, could write off his own car use between his lots, but none of his rental income vehicles get the same treatments. There can only be actual expenses for use of equipment used as an income generating device.

So the part it is used to let out goes to Schedule E. The part he drives goes to the Schedule C. The next question begs, on the Schedule C can he use a different method, such as the mileage rate? Given the fact that all use of this vehicle is being partitioned, an argument can be made that it is eligible for the mileage rate so long as the apportionment remains the same throughout the life of the vehicle. Any difference in apportionment would nullify the eligibility, because it would affect the election, so for tax planning purposes it is best to use the actual expenses throughout.


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## lyft_rat (Jul 1, 2019)

songoku said:


> Dear @UberTaxPro ,
> 
> I just want to ask a question about the tax situation if I lease out my car to an Uber driver? Let say I'm building a fleet and lease it out to fellow drivers that need cars to drive. I have been searching about this on the forum.
> 
> ...


A driver on his own can barely make a minimum wage living, so how to you think that you both can make money here? This is what I would call lose-lose.


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## LADryver (Jun 6, 2017)

lyft_rat said:


> A driver on his own can barely make a minimum wage living, so how to you think that you both can make money here? This is what I would call lose-lose.


Indeed, the IRS Golden rule for any business is that it must have a profit motive. I would caution Uber drivers as well, that if you are losing money for more than three of five years, your tax returns can be opened up and gutted of all of your auto expense write-offs. They would view the activity as a scheme like a tax shelter. If you truly are not making money, and continue to do so knowing you are not making money, be prepared for a hobby designation.


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## UberTaxPro (Oct 3, 2014)

LADryver said:


> I do not view this as simple by any means but the car, or in this case two cars, first get split into two parts, assuming no personal use.
> 
> The deduction method variations occur differently when letting out rather than owning and operating. Schedule E car costs method choices exist only for use of a car to manage rental properties, not rental income from cars. An owner of a car rental agency, however, could write off his own car use between his lots, but none of his rental income vehicles get the same treatments. There can only be actual expenses for use of equipment used as an income generating device.
> 
> So the part it is used to let out goes to Schedule E. The part he drives goes to the Schedule C. The next question begs, on the Schedule C can he use a different method, such as the mileage rate? Given the fact that all use of this vehicle is being partitioned, an argument can be made that it is eligible for the mileage rate so long as the apportionment remains the same throughout the life of the vehicle. Any difference in apportionment would nullify the eligibility, because it would affect the election, so for tax planning purposes it is best to use the actual expenses throughout.


Interesting answer & sounds logical but the hassle and expense of such accounting procedures is probably beyond the capability of most 4 or less vehicle mixed use operations out there. If I had a client in this position being audited and a collection officer ruled like this I would appeal and would point out that:
1. Taxpayer started as single driver using mileage method with this vehicle for ride-share
2. Taxpayers are prohibited from switching accounting methods for the same vehicle. (IRS policy)
3. Either option you give... 1. expensive accounting and 2. using actual expense method would place this business in search of a profit motive thereby putting it in jeopardy of violating another IRS policy - being considered a hobby.
4. "Fleets" of 4 or less are allowed to choose either method as their accounting method.
5. IRS can not force a taxpayer to break its own rules.



LADryver said:


> Indeed, the IRS Golden rule for any business is that it must have a profit motive. I would caution Uber drivers as well, that if you are losing money for more than three of five years, your tax returns can be opened up and gutted of all of your auto expense write-offs. They would view the activity as a scheme like a tax shelter. If you truly are not making money, and continue to do so knowing you are not making money, be prepared for a hobby designation.


I would also point out that losing money for more than 3 of 5 years doesn't automatically make your business a hobby. Yes, it might cause the IRS to audit you but with the *proper documentation of your profit motive* you could lose money indefinitely year after year. Even more reason to work with a professional to be sure your records are in order!
By the way, proof that you've worked with a pro goes a long way in documenting profit motive.


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## LADryver (Jun 6, 2017)

UberTaxPro said:


> Interesting answer & sounds logical but the hassle and expense of such accounting procedures is probably beyond the capability of most 4 or less vehicle mixed use operations out there. If I had a client in this position being audited and a collection officer ruled like this I would appeal and would point out that:
> 1. Taxpayer started as single driver using mileage method with this vehicle for ride-share
> 2. Taxpayers are prohibited from switching accounting methods for the same vehicle. (IRS policy)
> 3. Either option you give... 1. expensive accounting and 2. using actual expense method would place this business in search of a profit motive thereby putting it in jeopardy of violating another IRS policy - being considered a hobby.
> ...


A Collection Officer does not perform Audits. An Examiner performs audits. A Collection Officer is in the Collection Division after all efforts to collect a tax balance has begun. Most people who are audited never face contacts with a Collection Officer. So, the Examiner is sitting with this tax return on his desk, and sees that the mileage election was made in year one of the car. so now we are in the second year of the car? You are just adding on puzzle pieces. You are again confused about the answer. The example is as if you, Mr. EA, buys a car fresh from a car auction, and you know you bought it to drive rideshare yourself and also rent it to someone for their own rideshare activity. This is year one. That was your question. Year two after mileage method election is something else, another question. Nobody is changing accounting methods. Accounting methods have nothing to do with sections 162 and 183.

But if there was an election for mileage in the first year, then conversion in the second year there is Recapture. Then everyone is playing in the same actual expenses sand box. And you can apportion it but like I said, that would be too problematic.




> I would also point out that losing money for more than 3 of 5 years doesn't automatically make your business a hobby. Yes, it might cause the IRS to audit you but with the *proper documentation of your profit motive* you could lose money indefinitely year after year. Even more reason to work with a professional to be sure your records are in order!
> By the way, proof that you've worked with a pro goes a long way in documenting profit motive.


Business growth, where you are in development of a client base, this could be true. But it would be a losing battle if you try to pursuade an appeals agent that it takes ten years to pull profit as an Uber driver. So, those Uber drivers constantly losing money should start a different business that takes time to build, if you want to keep your deductions. And yes, use a tax professional. I am sure none of us are losing money, by the way.


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## UberTaxPro (Oct 3, 2014)

LADryver said:


> A Collection Officer does not perform Audits. An Examiner performs audits. A Collection Officer is in the Collection Division after all efforts to collect a tax balance has begun. Most people who are audited never face contacts with a Collection Officer. So, the Examiner is sitting with this tax return on his desk, and sees that the mileage election was made in year one of the car. so now we are in the second year of the car? You are just adding on puzzle pieces. You are again confused about the answer. The example is as if you, Mr. EA, buys a car fresh from a car auction, and you know you bought it to drive rideshare yourself and also rent it to someone for their own rideshare activity. This is year one. That was your question. Year two after mileage method election is something else, another question. Nobody is changing accounting methods. Accounting methods have nothing to do with sections 162 and 183.
> 
> But if there was an election for mileage in the first year, then conversion in the second year there is Recapture. Then everyone is playing in the same actual expenses sand box. And you can apportion it but like I said, that would be too problematic.
> 
> ...


Do you agree that the actual expense method and the standard mileage rate are "accounting methods"?

You don't have to have a profit to have a profit motive. Actual profit is just one factor considered when determining profit motive
The IRS lists nine factors in its regulations (section 1.183-2(b) ) that they use to differentiate a hobby from a business. You don't have to qualify under all 9. Here's the list of the nine factors:
1. the manner in which you carry on the activity
2. your expertise and/or that of your advisors
3. your time and effort expended carrying on the activity
4. the expectation that assets used in the activity may appreciate in value
5. your success carrying on other similar or dissimilar activities
6.your history of income or losses with respect to the activity
7. the amount of occasional profits, if any, which are earned
8. your financial status,
9. whether elements of personal pleasure or recreation are involved.

if you want the IRS to treat your money-losing activity as a business, you need to prove that you treat it as a business yourself. This means you need proof that your goal is to become a profitable business. In light of the above 9 factors, rideshare drivers should be doing the following three things
1. Prepare financial documents with the intent of documenting how your business can become profitable. This includes a business plan, Quicken or Quickbooks, proper documentation of entertainment and travel expenses, maintaining a list of business contacts together with notes on business actions taken.
2. Seek advice from third-party professionals as to how you can improve the business, and make sure to document the meetings and advice.
3. Use a journal and/or timesheet to document the time you spend on your business as well as the tasks performed. Time spent and activities engaged in are strong indicators of profit motive.


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## lyft_rat (Jul 1, 2019)

UberTaxPro said:


> In light of the above 9 factors, rideshare drivers should be doing the following three things
> 1. Prepare financial documents with the intent of documenting how your business can become profitable. This includes a business plan, Quicken or Quickbooks, proper documentation of entertainment and travel expenses, maintaining a list of business contacts together with notes on business actions taken.
> 2. Seek advice from third-party professionals as to how you can improve the business, and make sure to document the meetings and advice.
> 3. Use a journal and/or timesheet to document the time you spend on your business as well as the tasks performed. Time spent and activities engaged in are strong indicators of profit motive.


I would call this irrelevant advice. 1&2 are a waste of money and 3 is automatically recorded for you in the RS app.


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## LADryver (Jun 6, 2017)

UberTaxPro said:


> Do you agree that the actual expense method and the standard mileage rate are "accounting methods"?
> 
> You don't have to have a profit to have a profit motive. Actual profit is just one factor considered when determining profit motive
> The IRS lists nine factors in its regulations (section 1.183-2(b) ) that they use to differentiate a hobby from a business. You don't have to qualify under all 9. Here's the list of the nine factors:
> ...


Don't confuse these Rideshare drivers with principles that can not apply to driving around and giving rides and delivering foods. You are correct with reference to Industries and activities that this can apply to. There are many such activities. Uber and Lyft just aren't among them.

As to your question concerning Accounting Methods. There are two Accounting Methods recognized by the IRS. Everything else operates within one or both of these methods. The methods are Cash, or Accrual.

You may be an EA by having passed the examination, but I have had years working within the IRS itself, and after which in private practice involving numerous occupations I solved many tax problems directly with the IRS, wrote and filed Petitions to the Tax Court, appeared in audits and audit reconsiderations, and had a best friend who was an Examiner and Appeals Officer. I researched tax law from the publications to the code to the case law. I am happy not to be as up to date as I was then, but you can't insult me by insinuating my ignorance. Rather you may focus on helping rideshare drivers, are you a driver?


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## UberTaxPro (Oct 3, 2014)

LADryver said:


> Don't confuse these Rideshare drivers with principles that can not apply to driving around and giving rides and delivering foods. You are correct with reference to Industries and activities that this can apply to. There are many such activities. Uber and Lyft just aren't among them.
> 
> As to your question concerning Accounting Methods. There are two Accounting Methods recognized by the IRS. Everything else operates within one or both of these methods. The methods are Cash, or Accrual.
> 
> You may be an EA by having passed the examination, but I have had years working within the IRS itself, and after which in private practice involving numerous occupations I solved many tax problems directly with the IRS, wrote and filed Petitions to the Tax Court, appeared in audits and audit reconsiderations, and had a best friend who was an Examiner and Appeals Officer. I researched tax law from the publications to the code to the case law. I am happy not to be as up to date as I was then, but you can't insult me by insinuating my ignorance. Rather you may focus on helping rideshare drivers, are you a driver?


How did I insult you??? Kinda sounds like your insulting the hard working drivers on here to me. "principles that can not apply to driving around and giving rides and delivering foods" so tax law doesn't apply to all these hard working rideshare drivers because they're just driving around??? Have you ever tried it?
With all due respect Sir your're wrong about the accounting methods. With your experience I would think you'd be familiar with *form* *3115*? It is used when you want to change *accounting methods*. It very clearly lists other accounting methods on the form with check boxes next to them. Depreciation or Amortization and Financial Products and/or Financial Activities of Financial Institutions are listed as "Accounting Methods" along with a box for Other. I can assure you that the SMR and actual expense method are considered "accounting methods"

https://www.irs.gov/pub/irs-pdf/f3115.pdf



lyft_rat said:


> I would call this irrelevant advice. 1&2 are a waste of money and 3 is automatically recorded for you in the RS app.


I know you're right but when someone on here (not you) is trying scare people about the IRS coming after them by claiming their rideshare business is a hobby I thought it necessary.


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## LADryver (Jun 6, 2017)

UberTaxPro said:


> How did I insult you??? Kinda sounds like your insulting the hard working drivers on here to me. "principles that can not apply to driving around and giving rides and delivering foods" so tax law doesn't apply to all these hard working rideshare drivers because they're just driving around??? Have you ever tried it?
> With all due respect Sir your're wrong about the accounting methods. With your experience I would think you'd be familiar with *form* *3115*? It is used when you want to change *accounting methods*. It very clearly lists other accounting methods on the form with check boxes next to them. Depreciation or Amortization and Financial Products and/or Financial Activities of Financial Institutions are listed as "Accounting Methods" along with a box for Other. I can assure you that the SMR and actual expense method are considered "accounting methods"
> 
> https://www.irs.gov/pub/irs-pdf/f3115.pdf
> ...


I did say that probably nobody is losing money. However someone did say they use it to offset their wife's taxes, so a friendly word to the wise is not an evil. Scare? There is nothing to be scared of. Not when Mr. EA is here to protect them with incorrect information.


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## UberTaxPro (Oct 3, 2014)

LADryver said:


> I did say that probably nobody is losing money. However someone did say they use it to offset their wife's taxes, so a friendly word to the wise is not an evil. Scare? There is nothing to be scared of. Not when Mr. EA is here to protect them with incorrect information.





LADryver said:


> I did say that probably nobody is losing money. However someone did say they use it to offset their wife's taxes, so a friendly word to the wise is not an evil. Scare? There is nothing to be scared of. Not when Mr. EA is here to protect them with incorrect information.


You are continuing to insult me but have yet to tell me how I insulted you?


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## LADryver (Jun 6, 2017)

UberTaxPro said:


> You are continuing to insult me but have yet to tell me how I insulted you?


I'm not insulting you.


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