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Lease a car to Uber driver?

Stevie The magic Unicorn

Well-Known Member
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.
 

UberTaxPro

Well-Known Member
Past Sponsor
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.
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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.
 

LADryver

Active Member
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.


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.
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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.
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

Well-Known Member
Past Sponsor
@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?
 

LADryver

Active Member
@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.
 

lyft_rat

Well-Known Member
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.
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.
 

LADryver

Active Member
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.
 

UberTaxPro

Well-Known Member
Past Sponsor
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.
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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

Active Member
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.
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.

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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

Well-Known Member
Past Sponsor
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.

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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.
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

Well-Known Member
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.
 

LADryver

Active Member
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.
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

Well-Known Member
Past Sponsor
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
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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

Active Member
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
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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.
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.
 

UberTaxPro

Well-Known Member
Past Sponsor
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.
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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