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. Remember, the 2024 tax deadline is April 15, falling on a Monday. By midnight, all annual income taxes must be submitted. Procrastinators may spend the final weekend of April 13-14 rushing to file!
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 to gig drivers depending on what car you drive, calculate your monthly or annual expenses and how you can benefit by reducing your tax liability. Check out our short story video for gig drivers.
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 to be self-employed individuals who get jobs as freelance gigs and execute their work using a car for professional means of commuting or transporting delivery or parcels.
The biggest deduction for gig workers is mileage. Tracking mileage remains the most significant deduction for gig drivers in 2024. Accurate mileage tracking is critical to maximizing this benefit. Gig drivers can choose between two IRS-approved methods for calculating car-related expenses:
1- Standard Mileage Deduction Method
According to the IRS, the Mileage Deduction Method is a standard amount set per every mile you drive as a Gig Driver. The standard mileage rate for 2024 is 67 cents per mile driven for business purposes. However, the actual mileage method can be a bit more complicated than the standard mileage method, but it is 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 the 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 logs.
- 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 the situation of every gig driver and how many miles are driven for work. However, gig drivers who use actual expense methods end up paying less taxes if they drive a lot of miles or own a newer car model. Drivers logging 30,000 miles annually could deduct up to $20,700 using the Standard Mileage Method in 2024 based on the IRS mileage rate of $0.67 per mile (30,000 miles x $0.67 = $20,100). However, those with newer vehicles or higher actual expenses may save more using the Actual Expenses Method.
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 example, a driver splitting mileage between the first and second halves of 2024 may deduct $31,050 from their Schedule C. This deduction can significantly lower taxable income and reduce overall tax liability.
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 the standard mileage method includes the following:
- 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.
For the year 2024, the limit for the Section 179 deduction is $1,220,000 for qualifying properties and vehicles. However, there are rules and thresholds to follow, such as vehicle weight and business-use percentage. It’s recommended to consult a tax professional to determine if you qualify for this deduction. It is recommended that you consult a tax pro to determine whether you are eligible or not. Gig video story.
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 is 60% for 2024 (reduced from 100% in 2022 as part of a phase-out schedule under the Tax Cuts and Jobs Act).
- 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
Under the Clean Vehicle Credit (updated by the Inflation Reduction Act), gig drivers purchasing qualifying EVs in 2024 can claim tax credits up to $7,500 for new vehicles and $4,000 for used EVs, depending on battery capacity and income limits. For example:
- Tesla Model 3: $7,500 credit.
- Chevy Bolt: $7,500 credit (varies by model and battery type)
Keep in mind that these credits phase out based on income thresholds and manufacturing limits. Check the IRS website or consult an expert to verify your eligibility.
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.
In 2024, the maximum deduction is:
- $1,000 for individuals.
- $30,000 for businesses, provided the station is installed in a qualified location.
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
Being a gig driver who provides driving services or owns 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 their 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 appear on Form 1099-K. Box 1a on this form shows the total amount the rideshare operator collected from customers for the rides you provided.
- This amount likely exceeds what you actually received because it includes the rideshare company’s commissions and other expenses. The rideshare operator usually issues a tax form 1099-NEC to report other self-employment income. You will combine these two forms with any cash payments you received to report your income on the 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 2024, you should receive a 1099-K. This threshold remains consistent with the change implemented in 2024. For tax years prior to 2023, the threshold was more than 200 transactions and more than $20,000 in payments. Note that there is no threshold for payment card transactions, such as credit card swipes. As an independent contractor, it’s essential to understand the tax forms you may receive for your gig-driving income, as well as your applicable tax rate.
Being an independent contractor, such as an Uber or Lyft driver, means that you are self-employed. From the rideshare company’s perspective, you’re the owner of a separate business providing driving services. When you receive a payment, it’s not a traditional “paycheck,” and typically, no taxes have been withheld. This makes it crucial to set aside money for taxes throughout the year.
Additionally, if your non-driving income (e.g., referral bonuses or other gig-related income) is less than $600, you may not receive a 1099-NEC. However, even if you don’t receive any 1099 forms, you are still responsible for reporting and paying taxes on all income you earn, regardless of the amount or whether it was reported to the IRS.
In 2024, the self-employment tax rate remained at 15.3%, which covers both Social Security (12.4%) and Medicare (2.9%). Independent contractors may also qualify for deductions such as mileage, car maintenance, and phone expenses, which can significantly reduce taxable income.
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Claiming Business Expenses for Tax Deductions as a Gig Driver
As a gig driver in 2024, you will file Schedule C to report your profit to the IRS. This form allows you to record all your income and eligible business tax deductions. You pay taxes on your net income, which is your total income minus deductible expenses.
To find your income information, check the driver dashboard of platforms like Uber, Lyft, or DoorDash. You may also receive two tax forms: Form 1099-K (for transactions processed through third-party networks) and Form 1099-NEC (for non-employee compensation). These forms, along with your dashboard, will show your income and some tax deductions for which you qualify.
The gig economy has become a thriving sector in 2024, with millions of independent contractors exchanging labor, goods, and services via digital platforms. As a gig driver, you are classified as an independent contractor, meaning you’re responsible for paying your self-employment taxes, which include Social Security and Medicare contributions, along with federal and state income taxes.
To report income from gig economy jobs, gig drivers can use Schedule C, Profit or Loss From Business, to record both income and deductible expenses. Important write-offs for gig drivers include vehicle expenses (e.g., mileage, depreciation, or lease payments), gas, car maintenance, insurance, and even mobile phone bills if used for work purposes. The standard mileage rate for 2024 is 67 cents per mile, so keeping a detailed mileage log is crucial.
As the gig economy gains popularity, understanding tax responsibilities is key. Filing taxes electronically and providing direct deposit information can speed up your refund processing time. Trust your tax preparer to complete your individual tax return accurately and ensure you receive the maximum refund possible.
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 2024 is 67 cents per mile. This can be a significant deduction for gig drivers who use their vehicles for work purposes.
Are there any limitations on the number of deductions that gig drivers can claim?
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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