You probably became a food delivery driver sometime in 2020 and now you’re thinking about filing your taxes. As an independent contractor your taxes are more complicated than working for someone else. This article will help you put together all the information you’ll need so you can maximize your tax deductions and reduce what you would have otherwise paid in taxes.
This article will help you with the following:
(Click any of these topics to reveal more info)
All taxpayers need to file an IRSForm 1040. This individual tax form summarizes all of the income you earned for the year, plus deductions and tax credits. This information is used to figure out how much you owe in taxes. Information from several other forms break down the types of income, deductions, and credits you want to claim. As a driver for a food delivery service, you’ll likely want to be familiar with these forms:
- 1099-NEC: Reports how much money the food delivery service paid you throughout the year. All companies, including the food delivery service, are only required to provide this form if they paid you $600 or more in a given tax year. You won’t send this form in with your tax return, but you will use it to figure out how much business income to report on your Schedule C.
- W-2: Sent to full or part-time employees. It shows your total earnings, plus how much of your owed tax has already been sent to the government by your employer. As an independent contractor with the food delivery service, you will not receive this form from them.
- Schedule C: Where you report your business income and business expenses. Helps determine your business profit by subtracting business expenses from your income. The profit that you calculate is subject to taxation, and is reported on Line 12 of your Form 1040.
When should I file my taxes?
Most people know to file and pay their taxes by April 15th. If you’re a food delivery driver, you are self-employed… that means you likely owe quarterly taxes.
Because taxes are not withheld from their pay, most independent contractors are responsible for making quarterly tax payments based on their estimated annual income. If you owe more than $1,000 in taxes for the year and do not pay taxes quarterly, you’ll have to pay a late payment penalty by the IRS.
To file your quarterly taxes, you’ll need to calculate your estimated taxes and pay what you owe by each of these deadlines:
- Q1 Deadline: April 15, 2021 (Pay estimated taxes for January 1 to March 31)
- Q2 Deadline: June 15, 2021 (Pay estimated taxes for April 1 to May 31)
- Q3 Deadline: September 15, 2021 (Pay estimated taxes for June 1 to August 31)
- Q4 Deadline: January 15, 2022 (Pay estimated taxes for Sept 1 to Dec 31)
One perk of being self-employed is that you get to deduct all your business expenses from your business income, which lowers your taxable business profit. That means you only pay taxes on the portion of your income after you deduct all your business deductions. In order to claim these deductions, though, you need to have sufficient proof of each expense. Examples of good proof include:
- Mileage logs
- Receipts with notes on them
- Invoices for purchased assets (e.g. a new iPhone 12)
- Phone bills
Whatever your documentation is, make sure it includes the:
- Amount of the expense
- Time and place of the expense
- Business purpose of the expense
- Name of the vendor for the expense
Don’t have all the documentation you need? Contact us for tips on finding proof of past business expenses.
You mean you haven’t started tracking your expenses yet? What are you waiting for? The sooner you start tracking your expenses, the easier time you’ll have filing your taxes (and you’ll earn more money too since you’re likely to claim more deductions when you track them). Save yourself some headaches during tax season, start tracking your business expenses now.
Food delivery drivers with companies such as Instacart, DoorDash, and Grubhub are always welcome to reach out to the Contact-Free Taxes team of tax professionals for year-round support. During tax season we have a live chat feature with a local tax professional ready to answer your questions. Contact us with your questions.
Whether you need to pay taxes quarterly or annually, you’ll want to make sure you prepare by setting aside extra funds in your savings account ahead of each tax season. If you owe quarterly taxes, it is to your advantage to make each quarterly payment by the deadlines, or as soon after the deadlines as you can. This will reduce the penalties and interest you owe over time.
If you ever owe more taxes than you can afford and you’re not able to pay your entire owed tax on time, make sure to file your tax return anyway. There is a 4.5% late fee (plus interest) for each month your tax return is late, but only a 0.5% late fee for each month your payment is late.
While some tax deductions are related to running your business, others–like health insurance and charitable donations–are personal deductions. You’ll file these different expenses on one of two forms:
- Self-Employed Deductions: Use the Schedule C form. If you use a tax filing software, this form will be automatically generated when you report that you are self-employed.
- Personal Deductions: Use the Form 1040 and potentially the Schedule A form. Depending on how much your personal deductions end up totaling, your tax software may prompt you to take the standard deduction (a fixed amount based on your filing status) instead.
Tax filing options vary in price from free to over $500. That said, most people with simpler returns like to use more affordable tax prep software like TurboTax. You cannot use the free versions of these softwares to file self-employed tax forms. TurboTax Self-Employed, for example, charges about $250 to file a multi-form tax return that includes a Schedule C. You do, however, still need to figure out where to include your various deduction in the software’s form. Not all deductions are treated the same. Some deductions have a greater benefit. You also don’t want to make the mistake and claim all your deductions in the wrong category because you’ll be paying penalties and fees if you are audited by the IRS.
food delivery tax deductions
Kind of mileage can you deduct
You can deduct any mileage you drive for work. This includes mileage:
- When picking up orders
- When delivering orders
- Between deliveries
- To the gas station while working
- To shops for car maintenance
How to deduct mileage
There are two ways to deduct mileage. Depending on your vehicle, one option may save you a lot more money than the other:
- The Standard IRS Mileage Deduction: You can deduct a fixed rate of 57.5 cents per mile in 2020. For 2019, the rate was 58 cents per mile. This rate covers all the costs of operating your vehicle, like gas, depreciation, oil changes, and repairs. It’s typically the best option for most food delivery drivers.
- The Actual Expenses Method: This method lets you add up and deduct each of your individual business-related vehicle expenses. It’s typically a more cost-effective option for people who purchased a vehicle within the past year, or are paying monthly loan payments for a new vehicle.
Can I use this deduction even though part of the payment I get from my food delivery service is based on estimated mileage?
Yes! Although food delivery services generally use estimated mileage as one component in its calculation of how much payment to offer per batch, this is not a mileage reimbursement, so you can still deduct work-related mileage from your taxable income. Just make sure you have the documentation to back it up!
You can deduct anything that is “ordinary and necessary” for your delivery job, including your:
- Phone bills
- And necessary phone accessories, like car holders, chargers, or clips
Where on my tax form can I add phone expenses?
You can include any cell phone expenses on Part 5 of your Schedule C. After totaling your other expenses, write the final amount on line 27a.
Can I deduct my entire phone bill from my taxes or only a percentage?
That depends! You can only deduct expenses as a percentage of business use. This means that if you use your cell phone for work 50% of the time, and for personal reasons 50% of the time, you can only deduct 50% of your phone costs. The IRS looks at technology deductions very carefully, so do your best to accurately estimate this percentage.
One of the best ways to estimate work-related phone usage is to go through your phone records for a typical month, calculate how much of your data and phone calls occurred during work hours, and apply the average to the rest of the year.
Do I need receipts for all the phone accessories I bought for my job?
Any expense you deduct on your tax return should have good documentation to back it up. If you are missing receipts, we recommend looking through your credit card and bank statements for proof of their purchase.
You can deduct anything that is ordinary and necessary for your delivery job. That includes any insulated bags and blankets you buy to keep food orders warm. Remember, the IRS is strict about using business supplies for personal reasons, so if you ever need a hot bag outside of work, be sure to use a separate one.
Any toll fees that you pay while working are tax deductible, as long as they’re not already being reimbursed to you. Note: you can’t deduct tolls to and from work.
If you are missing documentation for any tolls, review past bank and credit card statements. You can access online statements for electronic toll collection devices, like an E-ZPass.
Sometimes you may choose to pay for parking in the city while working. That’s tax deductible! Unfortunately, traffic violations, speeding tickets, and parking tickets are not deductible, since they were incurred because of inappropriate driving and not directly because of work.
Fees for AAA or other roadside assistance programs are tax deductible, but only the percentage that is used for work. You can use your business mileage log to determine the business to non-business mileage ratio for your car, and apply that ratio to find the deductible portion of your AAA membership.
Monthly health insurance payments are deductible as long as you:
- Are self-employed (such as being a food delivery driver full-time)
- Have a business profit (Profit = Business Income – Business Expenses)
- Are not able to receive health insurance coverage from a spouse or employer
When deducting your health insurance, you’ll fill out Line 29 on Form 1040. Make sure to keep these two rules in mind:
- If you receive a government subsidy on your monthly payments, you can only deduct the cost of your bill every month, not the original price of your plan.
- If your net business profit for the year is lower than the total yearly cost of your health insurance premiums, then you can only deduct the amount equal to your business profit.
If you’re using a paid app that helps you as a food delivery driver then you can claim that as a deduction. The same goes for any software you paid for or have a subscription to that might help you as an independent contractor working for a food delivery driver.
Some valid uses of software includes (but not limited to):
- Microsoft Office to help you create spreadsheets related to your delivery data and expenses.
- Photoshop to create business cards to hand out to customers and prospective customers.
- Expense tracking app such as Stride
Rather have a professional prepare your tax return to guarantee you get every deduction you’re entitled to so you pay the minimum tax?
To file your taxes, just click on Book Tax Appointment. Then complete the contact form and we will instantly email you a quote.
Food Delivery Driver like Doordash, Grubhub, Instacart, Uber Eats, etc., You qualify for a Forgivable PPP Loan!!