The Biggest Tax Deductions for Gig Drivers
Gig Drivers, claim your tax deductions for gig work with a Tax professional at Akron Income Tax Co! Whether you work as a gig driver or rideshare driver for Uber, Lyft, or any other ride sharing start-up or you might work as an individual gig courier for any of the food delivery companies like DoorDash or UberEats. The Best Deductions for Gig Drivers are the mileage deductions. Additionally, it is important to note that tax laws can be complex, and the information in this post should not be construed as legal or tax advice.
We strongly recommend consulting with a qualified tax professional to ensure that you’re claiming all the vehicle tax deductions you’re entitled to and doing so correctly. When it comes to tax deductions for gig drivers, don’t forget to include your 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.
Knowing your Tax Preparation Choices
In this type of work, your tax situation and vehicle expenses, such as deductible expenses, are going to be your largest expense. A mileage app, such as Driversnote, can help you accurately track your mileage on your cell phone. 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. It’s March. We’re about a month away from tax time. By midnight on April 15, we all need to have our annual income taxes completed and submitted (April 15 falls on a Saturday this year, which means you have until midnight April 17, ensuring many will spend that final weekend frantically doing their taxes).
You should know you are eligible for certain tax deductions. It is important to know how to write off your expenses and how to claim maximum deductions to lower your taxes as a gig driver.
Today, you will learn about different types of taxes applicable on gig drivers depending on what car you drive, calculate your monthly or annual expenses and how you can benefit by reducing your tax liability.
Income Tax Services for Gig Drivers
Filing & Tracking Tax Deductions for Gig Drivers
Writing Off Your Car Expenses as a Gig Driver 101
IRS considers Gig Drivers as self-employed individuals who get job as freelance gigs and execute their work using a car for professional means of commuting or transporting delivery or parcels.
Gig workers biggest deduction is the mileage deduction. Tracking mileage is a must activity to be able to deduct car-related expenses from your income. To calculate car-related expenses there are two recommended methods for Gig Driver.
1- Standard Mileage Deduction Method
According to the IRS, Mileage Deduction Method is a standard amount set per every mile you drive as a Gig Driver. However, the actual mileage method can be a bit more complicated than the standard mileage method but great for gig drivers who drive thousands of miles for work.
You need to keep an active track of all your car related expenses including gas, oil, repairs, car insurance, registration fees and more. No need to get overwhelmed as now there are apps to calculate as per Mileage Deduction Method.
To calculate your active car mileage expenses, you need to:
- Keep track of all your car expenses.
- Use an app to scan and categorize your credit card transactions.
- Keep receipts for all your expenses.
- Document the business purpose for your car expenses.
- Be aware of the limitations on car deductions.
2- Actual Expenses Deduction
Actual Expenses dedication is a percentage-based tax method to calculate all your car related expenses also known as “Business Use Percentage” depending on how much driving you do for work as a Gig Driver.
To calculate Business use percentage, you must:
- Start by tracking your mileage: You will know how many miles you have driven for work and personal use.
- Use a mileage tracker app. There are apps available online to maintain updated mile log.
- Keep notes. It’s a good idea to keep notes of your business-related trips, including the purpose of the trip, the date, and the mileage.
- Be accurate. When calculating your business-use percentage, it’s important to be as accurate as possible.
Standard Mileage VS Actual Expenses
Usually, it depends on every gig driver’s situation and how many miles are driven for work. However, the gig drivers using actual expense methods end up paying less taxes, if they drive a lot of miles or own a newer car model.
There are still some situations where the standard mileage can be a better option for you, especially when it comes to calculating your taxable income. For example, if you drive 30,000 miles per year or above or if you drive an electric vehicle. Choosing the right tax deduction method can be challenging as it depends on many variable factors. In the case of gig drivers, it is important to consider the impact on your taxable income, particularly when it comes to vehicle expenses.
For instance, if you split your mileage evenly between the previous rate and the new rate, you can potentially deduct $30,250 from your Schedule C. This deduction can significantly reduce your gross taxable income, dropping it to $14,750. Anytime, anywhere: Internet access required; standard data rates apply to download and use the mobile app.
Check out the mentioned expenses and info below you need to evaluate the right deduction method for you as a gig driver:
- Consider how much you drive for work.
- Think about the age of your car.
- Factor in the cost of your car insurance and maintenance.
- Do the math to see which method will give you the biggest tax break.
Car-Related Expenses to Write Off for Tax Deductions
Gig drivers either can deduct particular expenses based on which deduction method they go with or few car expenses applicable with both methods.
Car expenses you can write off with standard mileage method includes:
- Gas
- Insurance
- Lease payments
- Maintenance
- Depreciation
Expenses deductible with both methods include:
- Parking
- Tolls
- Car washes
- DMV fees
Section 179 Deduction
Gig Drivers using cars for business purposes can claim tax returns according to Section 179 deduction. Car or vehicle owners can deduct the complete cost of the vehicle within the year of purchase instead of waiting for its value to depreciate.
According to the Section 179 deduction, the limit for the year 2022 was set at $1,050,000 which was applicable for qualifying properties inclusive of vehicles. It is recommended to consult a tax pro to determine whether you are eligible or not.
Bonus Depreciation
If your car qualifies for bonus depreciation, then you can claim for Section 179 deduction and Bonus Depreciation as well. Gig Drivers need to consider the following points and consult a professional to check your eligibility:
- Bonus depreciation is a deduction that allows you to deduct a certain percentage of the cost of a vehicle in the year you purchase it.
- The bonus depreciation rate for 2022 is 100%.
- There are certain restrictions and limitations that apply to bonus depreciation.
Using Electric Vehicles for Driving Gigs
Electric car deductions for Gig Drivers are eligible for certain tax credits and additional tax incentives.
Electric Vehicle Tax Credit
Government offers tax credits to electric car owners. Tax Credit can vary depending on your battery’s capacity as it phases out after the manufacturer has sold out 200,000 qualifying electric vehicles.
For example, in 2022, the tax credit for a Tesla Model 3 is $7,500, while the credit for a Chevy Bolt is $8,000.
Other tax incentives with federal tax credits are also offered to electric car Gig Drivers including rebates or tax credits on the purchase price.
Charging Station Deduction
To charge your electric vehicle you might need to install a charging station near your home or business point. Electric car owners are eligible to claim for a tax deduction on the cost of installation of a charging station.
For tax year 2022, the maximum deduction for a qualified charging station is $1,000 for an individual or $30,000 for a business.
Gig drivers can benefit from various deductions while filing their taxes. These deductions include areas of expertise that are specific to their line of work. For example, if a gig driver uses their own vehicle for deliveries, they may be able to deduct expenses related to the maintenance and gas of their vehicle. Additionally, they may also be able to deduct expenses related to equipment or supplies essential to their job. It is important for gig drivers to understand these deductions and keep accurate records of their expenses throughout the year in order to maximize their tax savings.
Filling Up 1099 Form, Schedule C & Schedule SE forms
From being a Gig Driver providing driving services or owning a separate business dependent on gigs makes you liable to pay taxes out of every payment you receive.
As a Gig Driver you are responsible to pay for your federal and state income taxes inclusive of social security and Medicare. An approximate of 30% to 40% can go to your taxes.
Gig Workers accepting ridesharing fares more frequently might be required to file quarterly estimated income taxes. If your net income from Gig Driving is $400 or more. You are expected to report your income and expenses in Schedule C and Schedule SE to file for self-employment tax.
Tax Forms
You won’t get a W-2 form instead Gig Drivers are more likely to get one or more 1099 forms. Ride Sharing start-ups distribute these tax forms according to the criteria:
- Payments for processing your customers’ payments are reported on Form 1099-K. The amount shown in Box 1a of this form is all the money that the rideshare operator collected from customers for rides that you provided.
- This will likely be more than you actually received in payment, since it includes the rideshare company’s commissions and other expenses. Your rideshare operator will most likely provide you a tax form 1099-NEC to track other self-employment income. These 2 forms plus any cash you received will translate to your report on Schedule C form.
- Payments for other activities, such as referrals or non-driving-related bonuses, are reported on Form 1099-NEC (1099-MISC in prior years). This money is income to report on Schedule C too.
Payment processor
If the rideshare operator processed more than $600 in third-party payment transactions in tax years beginning in 2023, then you should get a 1099-K. For tax years prior to 2023, the threshold is more than 200 transactions and more than $20,000 in payments. There is no threshold for payment card transactions such as credit card swipes. As an independent contractor, it’s important to understand the tax forms you may receive for your gig driving income, including tax rate. Being an independent contractor like an Uber Driver, means that you’re self-employed, and as far as the rideshare company is concerned, you’re the owner of a separate business that it uses to provide driving services. So when you receive a payment, understand that it’s not a traditional “paycheck,” and likely no taxes have been taken out.
Similarly, if your non-driving income was less than $600, you might not get a 1099-NEC. Even if you don’t get any 1099s, however, you are responsible for reporting and paying taxes on all the income you receive.
Looking for expert tax help? Let an expert do your taxes for you from start to finish with. Or get your taxes done right, with experts by your side. Get every dollar you deserve, guaranteed.
Claiming Business Expenses for Tax Deductions as a Gig Driver
You will file Schedule C to report your profit to the IRS. On this form, you record all your income and tax deductions. You pay taxes on your net income, which is your total income minus any business tax deductions.
You’ll find your income information on the Uber, Lyft or DoorDash driver dashboard. You may also receive two tax forms, Form 1099-K and Form 1099-NEC. The dashboard and forms will record your income and some of the tax deductions you qualify for.
The gig economy is a flexible way of working that involves the exchange of labor, goods, and services through digital platforms. Gig drivers often work as independent contractors, meaning they are responsible for their own taxes and expenses. To report income from gig economy jobs, gig drivers can use Schedule C, Profit or Loss From Business, to record income and deductible expenses. Deductions related to car usage, gas, and other important write-offs may also be available to gig drivers. As the gig economy grows in popularity, it’s important for gig workers to understand their tax responsibilities and take advantage of deductions to maximize their earnings.
Trust your tax preparer to complete your individual tax return and get you a larger refund, Your federal tax refund will arrive faster with electronic filing on your individual returns.
FAQs
What tax deductions are available for gig drivers?
Some common tax deductions available for gig drivers include vehicle expenses (such as mileage, gas, and maintenance), phone and internet expenses, insurance premiums, and self-employment taxes. It’s important for gig drivers to keep detailed records of their expenses to maximize deductions.
How can gig drivers keep track of deductible expenses?
Gig drivers can keep track of deductible expenses by using mobile apps for expense tracking, saving receipts for business-related expenses, and maintaining a detailed record of mileage for business purposes. It’s important to stay organized and consult with a tax professional for accurate deductions.
Are there any specific deductions that apply only to gig drivers?
Yes, gig drivers are eligible for specific deductions that apply to their line of work. Some common deductions for gig drivers include mileage expenses, vehicle maintenance and repairs, cell phone and internet expenses, meals during business travel, and rental fees for equipment or vehicles used for gig work.
Can gig drivers deduct their mileage expenses?
Yes, gig drivers can deduct their mileage expenses. The IRS allows gig drivers to deduct the standard mileage rate for business use of their vehicle, which for 2023 is 65.5 cents per mile. This can be a significant deduction for gig drivers who use their vehicle for work purposes.
Are there any limitations on the amount of deductions that can be claimed by gig drivers?
Yes, gig drivers can claim deductions for expenses related to their gig work. However, there may be limitations on the amount that can be claimed. It is important for gig drivers to keep accurate records and consult with a tax professional to ensure they are claiming deductions within the allowable limits.
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