Rideshare services like Uber and Lyft have become increasingly popular over the last few years, not only for passengers but for drivers as well. If you are interested in driving for a ride sharing service, then consider the costs that you will have to deal with as a driver. Some of these are pretty easy to understand and anticipate, while others can be harder to account for and help explain why used cars are so popular in this industry. Just remember that all of these costs eat into your earnings, so just because Uber said you made $25 for an hour of driving, doesn’t mean that’s what you’re taking home.
To keep things simple, I’m going to break these costs down into two major groups: the expected and unexpected. The expected costs are those things that you (surprise! surprise!) expect as a driver, and you can pretty easily account for. You might already have thought about some or all of these, but there may be a few surprises in here too.
The unexpected costs are those things that are often overlooked by Uber and Lyft drivers, especially drivers just starting out or that are interested in being a ride share driver. By having a sense of what these costs are and how they impact your profits overall, you can better ensure you are actually making decent money.
Expected – Gas
Another one of the highest costs of being a ride share driver is gas for your vehicle. Driving for Uber or Lyft puts a ton of mileage on your car, and you need gas to drive all of those miles. This is a major reason that many rideshare drivers prefer hybrid vehicles. The superior gas mileage they offer helps them cut down on gas costs and maximize profits.
If you can find a good hybrid sedan, with plenty of room in the backseat, used, and at a reasonable price, then you have hit the proverbial goldmine. Even if you can’t find a hybrid, you should still look for cars that offer the best fuel economy possible – there are some very good non-hybrids out there. The better your gas mileage, the more profit you will make.
Expected – Maintenance
This is one of those things that is somewhat expected but can also include some unexpected costs. You need to factor in routine maintenance for your vehicle – even more so than as a private driver. You’re going to put more miles and more wear and tear on your vehicle while driving for a ride sharing service, so consider the costs of that extra use. You’ll need to get your oil changed more often, need new tires sooner, and need to keep up on your service and maintenance to ensure your ride is in good shape.
Unexpected costs can come in the form of parts breaking down and needing to be replaced. Sometimes this can be a pretty minor thing – but if you need a new engine or transmission, then you can be in really bad shape. Take good care of your vehicle, and it will take good care of you.
Expected – Car Payments
Perhaps one of the highest costs of driving for a ride sharing service that you can expect and, to some extent, control is the payments you’ll have to make on your vehicle. Uber and Lyft don’t provide vehicles for you to drive, so you will need to have your own. Unless you already own a vehicle outright, you will need to make payments on the vehicle you drive, either on a loan for it or a lease.
This is one of the biggest reasons many ride share drivers prefer used cars: they’re less expensive. New cars cost more, which means the payments on them are higher. You can find a used car in good condition and have low payments, which cuts down on your upfront costs substantially.
Expected – Insurance
You might think, “I already have insurance,” and that’s fine, but depending on where you live, you might need better insurance to become a ride share driver. Better insurance with better coverage costs more money, so your insurance rates could go up. Either way, if you are serious about making the most as a driver for a ride sharing service, consider the cost of insurance a professional expense and keep it in mind when tallying your profits. Of course, if you get into any kind of collision, then your insurance rates could go up, so that’s one more reason to be a safe and careful driver.
Expected – Other Fees
Finally, consider any other fees and costs you need to pay to keep your vehicle on the road, including registration, inspections, permits, and passing emissions. These are expenses you would typically deal with as a private driver, but since your car is your money-maker, they become even more important. Take some time and think about everything you need to deal with each year or so and factor them into the costs of driving for a ride sharing service.
Unexpected – Average Cost per Mile
Now we come to the unexpected, somewhat unpredictable, costs associated with driving for a ride sharing service. Simply driving your vehicle puts wear and tear on it, beyond what you see and can anticipate. So much so, that the IRS allows for a yearly deduction on your income taxes (we’ll get to those taxes in a moment…) to account for the fact that driving wears down your vehicle. While this deduction is a good thing, it should also be an eye-opener.
For 2019, the mileage rate set by the IRS is $0.58 per mile – that’s 58 cents for each mile you drive. In other words, you can deduct more than half a dollar of profits from what you earn each year, from the IRS’s perspective, simply because of how that driving wears down your vehicle. That’s a good thing – deductions mean more money for you. But take a moment to consider that if you make $10 and drive someone just 10 miles, then the IRS says you put $5.80 of wear and tear on your vehicle.
Another way to think of that is that you’ve incurred $5.80 worth of hidden costs due to what that driving has done to your car. So that $10 you think you made, is actually just $4.20 when all is said and done. This also factors into the next unexpected cost…
Unexpected – Depreciation
Oh yes, depreciation is a big deal. This is how much your car is worth now compared to when you bought it. If you buy a new vehicle, then depreciation can be pretty huge. Even with a used ride, simply driving your car makes it worth less with each passing mile.
When driving for a ride sharing service, consider the costs of each mile you put on your vehicle and how it takes away from your car’s value. After a few years, you might decide you want to trade-in your car to get something new (or at least something new to you). Depreciation due to the massive number of miles you drove for Uber or Lyft can greatly reduce the value of your trade-in.
Even worse, if you still owe money on the car you want to trade-in, then depreciation might mean the value of the vehicle won’t even cover what you still owe. So you could have to pay just to get rid of a car you no longer want.
Unexpected – Income Tax
Ah yes, the IRS strikes again. As a driver for a ride share service, you are not an employee – you are an independent contractor. That means Uber or Lyft won’t pay your taxes to the IRS or file a W2 for you. Instead, they pay you everything you earn, and then you get a 1099. In other words: when taxes come due, you have to pay it all out of your pocket – that includes state and local income taxes too.
Make sure you put aside a percentage of everything you make each month so you won’t be scrambling when it’s time to pay your taxes. It’s not a bad idea to put aside 20% or even 25% of everything you make to ensure your local, state, and federal income taxes are all covered. That might sound like a lot, but trust me: it’s better to put aside too much rather than too little.