Both employed and self-employed taxi drivers can deduct an array of expenses to reduce income tax liability. Self-employed taxi drivers can deduct business expenses on Schedule C, and employed tax drivers can write off unreimbursed expenses on Form 2106.
Mileage expense is one of the most significant expenses a taxi driver incurs. Luckily, it's deductible. One option taxi drivers have is to calculate the actual vehicle expenses they incurred for work, such as gas, registration, insurance, maintenance, repairs, lease payments and depreciation. It can be burdensome to keep track of all these individual expenses, though, and general expenses like registration and insurance have to be allocated based on your business and personal use of the vehicle.
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For this reason, many taxi drivers opt to use the IRS standard mileage rate instead. The 2015 IRS rate is 57.5 cents per mile driven for business. Parking fees and toll charges aren't included in the standard rate, so you can write those off separately.
You can only choose the standard mileage rate if you provide your own vehicle for work. If your employer provides it, you can only deduct actual expenses you incurred.
If your employer requires that you purchase a specific uniform for work, you can also write that off as an unreimbursed business expense. To be deductible, though, the uniform must be a required condition of employment and be unsuitable for everyday use. For example, clothes that have the taxi company logo on them would be unsuitable for everyday use, but a generic uniform of black pants and a white polo isn't deductible. Jackson Hewitt notes that both the cost of the uniform and the cost of cleaning and laundering it are deductible.
Training and Licenses
Any education or training expense you incur to maintain or improve your skills as a taxi driver are deductible. Classes or training you partake in to earn a special license or passenger endorsement also count, and the cost to maintain your license can be written off. Any amounts you pay for tuition, books, registration and materials are deductible. The cost of traveling to the training is deductible as well. If you stay overnight, you can write off hotel costs and half of any meals you purchase.
Extra Deductions for Self-Employed Drivers
Employed taxi drivers are only allowed to write off specific costs as unreimbursed business expenses. Self-employed drivers, however, can write off any necessary or ordinary cost of doing business. Potential business expenses include:
- Local and state taxes
- Business registration and license fees
- Professional dues
- Rent and utilities expense for part of your home, if you meet the requirements for the home office deduction
- Office expenses
- Supplies for your passengers, like snacks and water
- The cost of cleaning and detailing your taxi
- Advertising, legal and accounting expenses
- Health insurance premiums
- Business insurance premiums