NT - Cost accounting and Uber

[Patrick Michael]

It's been almost 25 years since I took my cost accounting class and am looking to see if this makes sense or if I'm missing something.  I am using round numbers.

A friend started driving for Uber and we discussed whether or not it was financially worth the effort.  He is not concerned about his time since he is retired, he enjoys it and it gets him out of the house.  He had made about $10,000 and racked up about 7,500 miles. 

His taxable income would be $5,125 ($10,000 less $4,875 mileage deduction), $3,900 after taxes.  This got me thinking: is this the true income?  I would argue it is not. 

The only true variable cost in the mileage rate is gas.  He would have to pay for insurance and licensing whether or not he drove for Uber.  Repairs and depreciation are a mixed cost, as he would still have to make the repairs and the car would still depreciate even if didn't drive for Uber.

I used Kelly Blue book to see what impact the added mileage had on the value of the car, which was $600.  He had $500 in repairs (none of which were directly attributable to driving for Uber) and the business usage was about 40%, making the repair costs attributable to business use $200.   He gets 25 MPG and gas in this area is $3 a gallon, 12 cents a mile, making his cost for gas $900.

Looking at the cash flow, the true cost of driving for Uber is $1,700 ($900 for gas, $200 for repairs, and $600 for depreciation) making his true income $8,300.  After taxes, he has about $7,000 more in his pocket driving for Uber.

[mcb39]

Uber tracks his mileage., and possibly his income,  Generally I have not found it to be very profitable other than for personal pleasure.  I have even had clients who purchase a separte care to use just for Uber or Lyft.  

[mcb39]

I meant "personal car".  Also, I have to wonder how many of them report tips.

[Medlin Software, Dennis]

There should be a difference in insurance, to get a rider or separate/different policy for pax for hire coverage. I am not sure if I would get into dissecting how IRS comes up with amount per mile, I would just accept it.

There is money to be made.

When we travel, we use the higher end black type service. We want commercial licensed and insured drivers. I chat with most. Most use a separate card they are paying monthly for. Most will share their monthly nut for car costs (rent/lease and insurance). Most are making a decent living according to them. The most interesting recent was someone who leases a tesla. His big win is on the fuel cost savings, which mirror ours, at 20% or less than gasoline. Plus, the maintenance is much less than his former gas vehicle. He has a close to home free charger he uses off hours and has many he will use during any down time. Even when he pays SC prices, a SC is 50% or less than gas for him (which also mirrors my experience).

One of our kids uses uber to get to and from the airport. He prefers to use the EV/green service as the vehicles are a bit better than the rando person using their 5+ year old personal vehicle. More often than not, they are full time drivers.

[jiji778]

Love your breakdown of your friend's Uber gig. Right how these cost add up it’s wild. I totally get how the funny money income is not about the mile deduction, because really, it is not!

I’m glad he likes driving though! Not always about the money and sometimes it’s just about getting out and meeting people. Have you guys talked about how he could bump up his earnings in busy times or hotspots like that? It’d be nice to hear how it all plays out for him!

[Patrick Michael]

6 hours ago, jiji778 said:

Love your breakdown of your friend's Uber gig. Right how these cost add up it’s wild. I totally get how the funny money income is not about the mile deduction, because really, it is not!

I’m glad he likes driving though! Not always about the money and sometimes it’s just about getting out and meeting people. Have you guys talked about how he could bump up his earnings in busy times or hotspots like that? It’d be nice to hear how it all plays out for him!

I don't understand enough about how Uber works to tall intelligently about there behind the scenes processes.  He was a salesman all his life and really missed the personal interaction when he retired.   

[Corduroy Frog]

Deductibility of mileage is a topic for discussion.  I believe the full mileage cost per mile is applicable.

But there might be some argument about how much mileage can be deducted.  I believe IRS would prefer only the mileage which produces revenue would be deductible.

The driver leaves home and drives 3 miles to pick up his passenger.  He drives 20 miles to drop off his passenger, and drives home only 22 miles, being able to take a different route home.

How much is his deductible mileage?   20 miles because that is the only mileage with the passenger?  40 miles because the charged rate assumes a round trip is necessary to return, even without the passenger?  What about 45 miles, which would be ALL the mileage incurred including the trip from home?

I don't have any Uber drivers among my clientele.  At least not yet, but it may happen.  I can tell you that so many people are using Uber that traditional taxicabs are hurting.  Also Car Rentals such as Avis and Hertz.

[Patrick Michael]

I tell my clients that as long as their home is their principle place of business under  § 280A(c)(1)(A) (“principal place of business” includes a place of business which is used by the taxpayer for the administrative or management activities of any trade or business of the taxpayer if there is no other fixed location of such trade or business where the taxpayer conducts substantial administrative or management activities of such trade or business) they can deduct all mileage, from the time they leave the house until they get home, as long as they are logged into the app and ready and able to take on passengers, under Rev. Rul. 94-97 (Rev. Rul. 94-47 amplifies Rev. Rul. 190 and Rev. Rul. 90-23 to provide that, if the taxpayer’s residence is the taxpayer’s principal place of business within the meaning of § 280A(c)(1)(A), the taxpayer may deduct daily transportation expenses incurred in going between the taxpayer’s residence and another work location in the same trade or business, regardless of whether the other work location is regular or temporary and regardless of the distance.

 

 

[BulldogTom]

That is why Home Office is one of the first things auditors go after.   They don't care about the office costs (utilities, interest, etc.), they are trying to get rid of the mileage deduction.   Because even if you have perfect mileage logs, if you don't have a place of business to start from, the first and last trip of the day is commuting.   

Tom
Longview, TX

13 minutes ago, Patrick Michael said:

I tell my clients that as long as their home is their principle place of business under  § 280A(c)(1)(A) (“principal place of business” includes a place of business which is used by the taxpayer for the administrative or management activities of any trade or business of the taxpayer if there is no other fixed location of such trade or business where the taxpayer conducts substantial administrative or management activities of such trade or business) they can deduct all mileage, from the time they leave the house until they get home, as long as they are logged into the app and ready and able to take on passengers, under Rev. Rul. 94-97 (Rev. Rul. 94-47 amplifies Rev. Rul. 190 and Rev. Rul. 90-23 to provide that, if the taxpayer’s residence is the taxpayer’s principal place of business within the meaning of § 280A(c)(1)(A), the taxpayer may deduct daily transportation expenses incurred in going between the taxpayer’s residence and another work location in the same trade or business, regardless of whether the other work location is regular or temporary and regardless of the distance.

 

 

 

[JohnH]

Interesting discussion about ride-share and delivery services providers.  I've always assumed that from a financial standpoint, choosing to engage in it is just trading eventual long-term wear and tear on their vehicle for some cash in the present (minus the current cost for gas). That's probably an over-simplification but it's based on my experience preparing Schedule C over the years,  

Apparently some people seem to make it work, and in fact a couple of my Uber rides in recent weeks were in Teslas. On the other hand, I'd think many net fuel savings calculations with EV's generally under-estimate the true amortized cost of eventual battery replacements either through repairs or purchase of a replacement vehicle.  (I'm certainly taking that into account when thinking about perceived fuel savings on my wife's hybrid) 

[Terry D EA]

On 11/6/2024 at 9:22 AM, Patrick Michael said:

I tell my clients that as long as their home is their principle place of business under  § 280A(c)(1)(A) (“principal place of business” includes a place of business which is used by the taxpayer for the administrative or management activities of any trade or business of the taxpayer if there is no other fixed location of such trade or business where the taxpayer conducts substantial administrative or management activities of such trade or business) they can deduct all mileage, from the time they leave the house until they get home, as long as they are logged into the app and ready and able to take on passengers, under Rev. Rul. 94-97 (Rev. Rul. 94-47 amplifies Rev. Rul. 190 and Rev. Rul. 90-23 to provide that, if the taxpayer’s residence is the taxpayer’s principal place of business within the meaning of § 280A(c)(1)(A), the taxpayer may deduct daily transportation expenses incurred in going between the taxpayer’s residence and another work location in the same trade or business, regardless of whether the other work location is regular or temporary and regardless of the distance.

 

 

 

This is the way that I do it as well. I do have one client that has driver for both Lyft and Uber for a number of years. Make sure you get the end of year print out from Uber. Uber always takes a portion of the ride and deducts it from the final payout. If the issue a 1099K which in the past they have, the 1099K shows the gross amount before Uber deducts their portion so be careful there. Yes, this client has made over 20K generating the 1099K. Remember no cash everyone pays with debit or credit . I make sure I keep all documentation together. My client is actually making a living doing this. Sits at airports and other locations to pickup rides. It seems if one is aggressive enough it can be profitable.