As another year of earnings comes to a close, it’s time to start prepping for a critical step in your work: filing taxes as an independent contractor.
First, we need to mention that Gridwise is not a personal tax advisor. The information below is meant only for guidance purposes and not as professional, legal, or tax advice.
If there’s one thing you should take away from your article it’s that tracking your mileage and expenses is critical as a gig driver — and can help you keep more of what you earn at tax time.
As of 2021, you’ll be able to deduct $0.56 for every mile you drive, but only if you’re keeping a precise log.
Here are a few ways to track your mileage and boost your tax deduction as a gig driver:
Different methods for tracking gig mileage
Pen and paper
Many gig drivers choose to go old school, using pen, paper, and their car odometer to log miles driven on the job. This gets around the issue of apps not tracking your miles/earnings properly, but it comes with its own set of problems.
Even the most diligent driver can forget to check their odometer before and after a shift. Human error shouldn’t be underestimated when it comes to calculating things by hand. Keeping track of calculations and sheets of paper, as well as receipts, gets messy and complicated quickly.
Logging your driving info on spreadsheets means less of a paper chase, but it still requires a diligent mindset to keep track of differences in car mileage before and after shifts. This method of mileage tracking can be very effective, but those missed or miscalculated miles add up fast.
Doing a mix of these options can help minimize the downsides of each method. Drivers have logged miles and earnings for years this way, and it’s been a fairly successful way to keep track. But is it the best method?
Driver assistant apps
While relying on driving assistant apps means dealing with occasional sync issues or glitches, it’s by far the most convenient option. Instead of logging everything on paper or transferring data to a spreadsheet, everything is tracked automatically and kept in one place – your app!
You can export your data every quarter and generate reports that have your miles, expenses, and earnings in a few neatly organized pages – no paper chase or spreadsheets required!
Gig driver tax deductions – maximize your mileage
Track Every Mile
You might be thinking that your apps are already tracking mileage for you, but that’s only half correct. Your apps do track mileage, but only the miles you drive when on a ride or delivery. As an independent contractor, you should track every mile for the largest deduction.
And what you may not know is that you can track the miles you drive when not making a delivery or completing a ride. So all those “dead miles” you spend driving to hotspots or driving back home can be counted toward your deduction – even though apps like Uber and Doordash don’t track those miles.
Plus, Gridwise also keeps track of your earnings and any other expenses you incur so you’ll have all the information you need when you’re ready to file.
And if you ever have issues with your earnings or miles syncing, our customer support team will address problems promptly to get your records straight ASAP.
Forgetting something? You need to make estimated payments…
Whether you’re on the road part-time or full-time, you need to make estimated quarterly tax payments if you expect to owe more than $1,000. These taxes cover things like Social Security and Medicare.
Why Stop at Mileage?
Being self-employed isn’t easy… make sure you’re taking advantage of the perks available to you like these additional deductions:
- Paid Apps & Services — are you using other paid apps to make your driving experience better for you or your passengers? As long as more than 30% of their usage is related to your business, that cost is expensable.
- Dash Cam — Dash cams are a great way to protect yourself and your riders in the event of an accident or incident, and their cost is another tax deduction.
- Parking & Tolls — While these fees can be annoying, they can also help you save.
- Roadside Assistance — Any fees associated with keeping you on the road are part of what helps you work, so they’re deductible.
Realizing the deductions available to you a gig driver is great, but a word of caution — don’t get too carried away. While there are a lot of legitimate deductions you can take, the IRS will spot it if you’re trying to blur the line between work and personal use. A few dollars saved on tax day isn’t worth a visit from the tax man.
Understanding Tracking Methods
Once you have your final number of miles driven, there are two ways to calculate your deduction: Standard Mileage Deduction and Actual Cost.
Standard Mileage Deduction — Using this method, you just multiply your miles driven by the standard deduction per mile for a given year. This rate includes expenses like gas, insurance, maintenance & repairs, registration, depreciation, and lease payments.
Actual Cost — The actual cost method requires you to keep detailed track of all of these expenses independently to calculate your actual cost per mile.
For most drivers, the standard deduction is the simplest way to go and will still help you save at tax time. If you’re wondering which method is best for your business, it’s best to consult with a tac professional. They’ll provide the best option based on your unique business.
Whether you’re driving full-time or part-time, make sure you’re keeping up with estimated taxes and keeping track of every expense you incur. You put in the work to be your own boss, you should enjoy the benefits!
To make it simple, just download Gridwise today to keep up with all of your miles and expenses. Plus, you’ll get access to our collaborative driver community and driver benefits only available to the Gridwise team.