Key Takeaways
- If you’re an independent contractor, you generally can deduct business expenses such as phone bills and gas or mileage expenses on Schedule C.
- If you’re an employee of a delivery company, you can only deduct unreimbursed employee expenses, including mileage, for tax years prior to 2018.
- There are two ways to calculate your vehicle expenses: the actual expenses method or the mileage method. For either method, you need to know how many miles you drove your vehicle for both business and personal purposes during the tax year.
- The mileage method uses the IRS’s rate of 67 cents per mile for 2024.
Employee vs. Independent Contractor
The way you file your tax return for this innovative and evolving line of work largely depends on whether your delivery company hires you as an employee or as an independent contractor.
On-demand food companies can contract with drivers to make deliveries or hire them as employees. For employees, they typically will withhold from each paycheck federal income taxes on their earnings.
Independent contractors, on the other hand, have to pay their own taxes as they go by estimating the tax they owe and sending the IRS recurring payments throughout the year. You can use TurboTax’s free tax estimator to get an approximation of what you might owe.
Employees: Deducting vs. Itemizing Expenses on Schedule A (for tax years prior to 2018)
Employee food-delivery drivers often spend their own money on the job, so you might be able to deduct certain work-related costs at tax time including:
- phone bills
- gas and mileage expenses
Deductions can lower the amount of your income that's taxable—which reduces your total tax bill and maximizes your refund.
Generally, you can either take a Standard Deduction, such as $6,350 if you're filing 2017 taxes as a single person, or you can list each of your deductions separately. This method is known as itemizing. Itemized deductions are reported on Schedule A.
It may be worth itemizing expenses when they will exceed the Standard Deduction you're allowed for your filing status. For example, if your itemized deductions totaled more than $6,350 in 2017, you might benefit more from itemizing.
Beginning in 2018, unreimbursed employee expenses are no longer deductible, making it potentially more profitable to be an independent contractor rather than an employee.
Independent Contractors: Reporting Expenses on Schedule C
As a contracted delivery driver, you may be covering 100% of your own business costs. Because these expenses dip into your earnings, you can often claim them as deductions at tax time to lower your overall tax bill.
Independent contractors are generally considered small business owners and report profits and losses on Schedule C.
If you earned $400 or more after expenses as an independent contractor, you likely have to pay self-employment tax. This covers Social Security and Medicare taxes, which is typically withheld from the paychecks of employees by their employers, but this isn’t the case for independent contractors who must estimate and pay these taxes on their own.
TurboTax Tip:
If you earned $400 or more as an independent contractor, you will likely have to pay self-employment tax. This covers Social Security and Medicare taxes.
Keeping Track of Your Expenses
Keep an accurate and detailed paper trail of your expenses to help you fill out Schedule A or Schedule C at tax time. Receipts and logs are your best friends and come in handy if you should be audited.
Separate your personal expenses from your business expenses by calculating the portion of your costs used for delivering food.
- If you have an expense that is both personal and business, then you need to allocate it between the two.
- If an expense is only business related, then no allocation is required.
For example, suppose you use your phone 30% for delivery food and 70% for personal use.
- You would multiply your phone bill by 30% to determine how much might be a deduction from your earnings or as an unreimbursed employee expense for itemizing your deductions.
If you are using your vehicle for delivering items, you might be able to deduct the costs of its use. There are two ways to deduct vehicle costs—using the mileage method or actual expenses method. Either way, you need to track your personal miles and your business miles.
To understand more about tax deductions, visit our Self-Employed Tax Deduction Calculator for Delivery Drivers.
When using the mileage method:
- You can get a deduction for the number of business miles multiplied by the IRS mileage rate. For 2024 the rate is 67 cents per mile.
- To use the mileage method, you will have to have used this method the first year you placed your care in service.
- After the first year, you can switch back and forth between the mileage and actual expenses methods.
- If you didn’t use the mileage method the first year, then you will only be allowed to use the actual expenses method going forward.
When using the actual method:
If you use the actual expenses method, you will need to track your business and total miles as well as the actual expense of operating your vehicle. These expenses can include:
- gas
- insurance
- car maintenance and repairs
- interest on a car loan
- registration fees
- depreciation
After you total up all of the expenses for operating your car for the year, you multiply the amount by the percentage of business use of your vehicle—the business miles for the year divided by the total miles for the year. For example, for the year:
- your total auto expenses are $5,000
- your total miles are 20,000
- your total business miles are 10,000
- 10,000 / 20,000 = .5 or 50%
- $5000 x .5 = $2,500, which is the amount you can claim
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