Gridwise does not provide tax, legal, or accounting advice. This material has been prepared for information purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before filing your return.
You might be a seasoned driver or completely new at the business of shuttling people and the things they love to where they belong. In any case, you need to understand the ins and outs of being a gig worker and how that affects your status as a taxpayer.
This post will tell you what you need to do to responsibly pay your taxes and get the most out of all the tax deductions you can take as a gig worker.
Here's what we cover:
What does it mean to be a gig worker?
Before we do anything else, let’s look at what it means to be a gig worker or part of the gig economy. According to this piece from Corporate Finance Institute, the gig economy is flexible and involves the exchange of labor, goods, and services through digital platforms that match buyers and sellers.Companies hire independent contractors and freelancers instead of full-time employees. Work is assigned on a temporary basis and allows gig workers to largely choose their own hours.
That sounds about right. As a gig driver, you have flexible hours and use an app to connect with people who want to use your services. You are not an employee of any of the companies you work with.
But, because you are an independent contractor, the company or companies you do work with will not take taxes out of your pay. That sounds good at first hearing, because you get to keep all the money you earn, at least until tax time!
Being an independent contractor also means you are totally responsible for paying your own taxes and knowing when and to which government entities to pay. This Gridwise blog post offers more details about the basics of paying your taxes, and how the Uber, Lyft, and DoorDash mileage reimbursement can reduce your taxable income. This is not the only deduction to consider, however.
What you can deduct as a gig driver
When Gridwise was created, it was built specifically for gig drivers, by people who had been in the business themselves. They knew how many things a driver needs to keep track of so that they can deduct the costs of doing business from their gross income, and therefore not have to pay as much at tax time. This list from Keeper details 23 things you can write off as a Lyft and Uber driver.
- Vehicle expenses
No one needs to be told how much it costs to keep a vehicle running and in working order. It’s a lot. When it comes to deducting these expenses, drivers have to be careful. For the first year you operate a vehicle for business, the IRS requires you to use the standard mileage rate in order to calculate the deductions you can take for operating it. You must be able to prove that you use your vehicle for business, and document miles accrued for your gig as opposed to personal purposes.
Most vehicle expenses are covered, by and large, by the IRS mileage reimbursement rate. Once you make it through the first year using the IRS standard mileage rate, you can opt to calculate the actual costs of operating your vehicle, and see which method yields the larger deduction. These expenses would include
- fuel/charging
- vehicle maintenance (See this Gridwise maintenance checklist for all that this entails)
- insurance
- registration
- inspection
- tolls
- cleaning the car (car washes, detailing)
- vehicle depreciation
- car lease payments
- repairs
- parking costs
The IRS provides rules and guidelines for using the actual cost method in this tax document. Be sure to read these requirements before filing your tax return, or better yet, consult with a tax professional to avoid making errors that could turn out costing you more than you’ll ever save by using the actual cost method.
Note: If you’re wondering, Can Uber drivers deduct their car payment? we have to dash your hopes on that one. You can’t list your car payments as part of your Uber expenses because you cannot deduct payments on an item that will eventually become your asset.
- Equipment
Your vehicle isn’t the only thing that makes your gig work possible, to be sure. There are plenty of other items you use in the course of your rideshare and delivery work, such as
- the portions of your cell phone and phone plan costs that you use for your gig
- accessories such as mounts and phone chargers that you’ve purchased for your riders’ use
- delivery gear like insulated bags, beverage carriers, dollies, pushcarts, and crates
- floor mats and seat covers
- Extra services
If you’re a rideshare driver, there are certain things you know will make your customers happy, and you want to provide them. If you deliver, you also make purchases related to your work that you might not purchase otherwise. That means there are more tax deductions for Uber drivers and DoorDash tax write-offs to benefit from than there are for people who aren’t gig drivers. These may include
- subscriptions, including satellite radio and music streaming platforms
- bottled water and snacks provided to customers
- sanitizing equipment, from hand cleaner to sneeze guards
- enhanced car sound systems
- Business tools
Your driving gig might be quite diverting, and even fun, but never forget that it’s a business. Because there is so much to managing a business, there are more expenses you might run into as you go along. Be sure to deduct the costs of running your business, such as
- Home office expenses, such as the software, supplies, and equipment used for recordkeeping. This expert advice from Keeper will help you choose the right items to deduct. As always, though, it pays to get “final answers” from a tax pro.
- Contributions to your IRA.
- Legal, accounting, or tax advisor fees.
- The cost of productivity apps such as navigation tools, parking assistants, GridwisePlus, and Keeper all count to your tax deductible costs.
Now that you know about the things you can deduct from your gross income, set up a system to record these expenses so you’ll be equipped to put them to work for you when tax time comes.
Documenting your deductible expenses
There are two solid reasons for keeping a full and accurate account of your Lyft, Uber, Instacart, and DoorDash expenses. First, you will want to be able to take advantage of everything you can deduct. Second, in the event your return is questioned via an audit by your “friendly” federal, state, or local tax officials, you’ll be able to produce evidence that could save you a lot of trouble.
What do you need to pay special attention to, and how can you best ensure you have accurate records? Here are a few important behaviors to institute:
- Keep receipts and invoices organized.
- Record odometer readings and trip details, or use a mileage tracking app such as Gridwise.
- Keep a log of the hours you drove and how much you made.
- Calculate the actual expenses of using your vehicle and compare that to the deduction you would get using the IRS standard mileage rate.
- Clearly differentiate your income and expense records so they concur with your 1099 information.
Organization is a huge part of getting what’s coming to you in terms of tax deductions. And the more money you make, the more you’ll be looking for Lyft driver tax deductions and Uber tax advice to help shave down your taxable income figure.
It’s crucial to keep track of your driver tax deductible expenses. It’s not likely, unless you’ve overpaid your quarterlies, that you’ll come up with reduced rideshare tax or a Lyft refund, but maximizing deductions will keep you on the right road toward driving taxes down.
Gridwise has good news for drivers who might be struggling to understand how to calculate and use DoorDash expenses and Uber driver tax deductions. Gridwise Tax Help, powered by Keeper, isn’t designed for just anyone. It’s engineered specifically to assist gig drivers as they collect their income and expenses information, and prepare and file their tax returns. Gridwise Tax Help gives you:
- automatic mileage tracking for shifts logged with Gridwise—we do the math
- automatic receipt tracking—no more piles of paper to sort through
- extra tax deduction finder—the app scans your expenses for deductions you might miss
- access to your very own tax professional—someone is there to answer all your questions
Do yourself a favor. Download Gridwise and sign up for Gridwise Tax Help to save big on your taxes.
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