Driving for Uber or DoorDash has its perks. Drivers have the freedom to work whenever they want and however much they want. But with freedom comes great responsibility. Because these drivers are considered independent contractors, they’re responsible for filing and paying their taxes.
Filing Taxes as an Independent Contractor
Whether you’re a DoorDash driver or driving for Uber, it’s important to understand that you’re an independent contractor. This means that you are not an employee of the company you’re driving for, and that company won’t be withholding taxes on your behalf.
Essentially, you’re a sole proprietor running your own business.
As an independent contractor, you will receive a 1099 each year from the company you contract with if you were paid more than $600 that year. If your net earnings exceed $400, you will also need to report that income.
Schedule C will include all of your income and your deductible expenses. Keep in mind that you will only pay taxes on the profit that’s left after deducting all of your expenses from your business income.
What Taxes Do Delivery and Rideshare Drivers Pay?
As a delivery or rideshare driver, you will be required to pay the following taxes:
- Income taxes (reported on Form 1040)
- Self-employment taxes (reported on Schedule SE), which includes Social Security and Medicare contributions
Self-employment taxes must be paid on your net income in addition to your income taxes.
It sounds complicated (and it can be), but there are tax preparers and tax filing systems, like TurboTax, that can help you through the process.
What Expenses Can Independent Contractors Deduct?
Fortunately, independent contractors can deduct expenses to lower their tax burdens. But in order to do this, you’ll need to keep track of all deductible expenses you incur and your miles throughout the year. You must be able to prove that you incurred these expenses.
For delivery and rideshare drivers, the biggest deduction will be car expenses. These can be deducted in one of two ways:
- Deducting actual expenses, such as repairs, gas, depreciation, registration, maintenance, oil changes, and more.
- Taking the standard mileage rate of 54.5 cents per business mile you drive.
Many independent contractors take the standard mileage rate because it requires less record-keeping.
Regardless of which method you choose, you need to ensure that you’re tracking your mileage. Many drivers use an app for this purpose. Some of these apps will also allow you to track revenue, expenses and more.
Other deductions that may apply to rideshare and delivery drivers include:
- Parking and tools
- Mobile phones and service
- Commissions and fees charged by the company you contract with
- Delivery gear, such as shirts and insulated bags
- Car loan interest
What About Estimated Taxes?
Whether or not to pay estimated taxes is a controversial issue. But in short, if you expect to owe more than $1,000 in taxes as an independent contractor, you must make quarterly tax payments.