How do you decide whether to claim actual expenses as a delivery driver for gig apps like Grubhub, Doordash, Postmates, Uber Eats, etc., and how do you know which expenses to claim?
You can claim a per mile rate for your car expense. If the actual expenses are higher, you can go that route instead (with limits). So which one is better?
The only way to know is to track both.
What Car Expenses are Allowed for the Actual Method as a Grubhub Doordash Postmates Uber Eats Delivery Driver?
Topic 510 on the IRS website states that “To use the actual expense method, you must determine what it actually costs to operate the car for the portion of the overall use of the car that’s business use. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles.”
Here’s what it boils down to:
- Operating cost. That’s gas and whatever you have to put in the car to keep it running
- Maintenance and repair. This would include regularly scheduled maintenance such as oil changes. It includes replacing items that wear out: tires, wiper blades, shocks and struts. Any repairs, major or minor, count.
- Fixed costs – insurance, registration and licensing costs.
- Car costs – either lease payment OR registration (not both). This would include any items that are part of the car itself.
Here is a scenario to help you see how to calculate your costs
Ron drives a 1998 Buick. It gets bad gas mileage and, now that it’s older, it’s requiring some repairs. His costs include:
- Gas = 1,315 gallons at $2.40 per gallon = $3,156
- Oil changes = 6 oil changes at $40 each = $240
- Repair and maintenance. He had to do tires, brakes, a major tune up, replace the radiator and water pump. $2700
- Insurance = $115 per month = $1,380
- Registration and licensing = $92
- Car cost. Ron owns the car (he’d be crazy to make payments on a 22 year old car). He bought the car a couple years ago and finds that he can claim $338 depreciation cost.
- TOTAL ACTUAL COST = $8,069. (32.3¢ per mile)
- Business portion of that cost = 20,000 business miles = 80% of 25,000 overall miles. 80% x $8,069 = $6,455.22
- The standard mileage rate of 58 cents a minute would allow him to claim $11,600.
- He can choose the standard mileage deduction of $11,600 OR the actual cost of $6,455.22. The standard mileage deduction is higher.
Is the actual cost ever higher than the per mileage cost?
Sometimes, especially if the vehicle is newer or more valuable.
Bob bought a Subaru Outback a year ago. With taxes the purchase price was $34,000. Bob drives part time and works a daytime job. He puts 20,000 miles on each year, 12,000 are for business (60%). He claimed actual costs last year, the first year he had the car.
- Gas – Bob paid $1,845 for gas
- Oil changes and maintenance – Bob paid a bit more at the dealership- $415
- Tires – So far the only thing Bob has replaced were the tires. They still had some good life left, but it was getting to be Winter and Bob was being cautious. $725
- Insurance = $1,640
- Registration and licensing = $675
- Depreciation = $8,704
- Total Actual Cost: $14,004 (70¢ per mile)
- Total business portion of that cost (60%) $8,402
- Standard Mileage Deduction = $6,960
In this situation, Bob choose to claim the actual cost.
The actual cost method allows Bob to claim more than using the Standard Mileage Deduction. Notice that his total actual cost was $14,004 but Bob could only claim $8,402. Only 60% of Bob’s miles were for business, so he’s only allowed to take 60% of the car related expenses. But even then, it was more than he could if he took the 58 cents a mile.
I should add, Bob didn’t really have a choice. Since he used actual expenses the first year of the car, he’s locked in to using that method every year he uses that car.
These factors make it more likely that your actual costs may be higher.
There are two factors that tend to make actual cost higher. The big one is depreciation. Cars tend to lose value, and that loss of value is an expense. A car that costs $35,000 is going to lose more value than a car that costs $2,000. A more valuable car’s loss of value is usually going to be the single largest expense for a car.
The other thing that makes a difference is the impact of fixed costs. I mentioned those above – things like insurance, registration and (from the IRS’s point of view) depreciation remain the same if you drive 5 miles or 50,000 miles. The impact on a per mile basis is smaller when you drive more miles. For example, say Bob drove 50,000 miles instead of 20k. Bob’s costs for gas, maintenance and repairs go up proportionally: From $2,985 to $7,462.50. But insurance, licensing and depreciation remain the same. So now Bob’s overall cost is $18,478.50. The impact of the fixed costs was reduced to the point that Bob’s cost per mile went from 70¢ at 20k to 37 cents per mile at 50,000 miles.
Here are some things to think about when claiming actual car expenses as a delivery driver for Doordash, Uber Eats, Postmates, Grubhub and other gig companies
The rules are kind of tricky around it all. Tricky enough that you may find it better to claim the mileage deduction even if actual costs are higher. There’s a lot more simplicity involved with the standard deduction.
You cannot claim your car payment.
Here’s the thing with your car payment. Your car is considered an asset. The IRS sees it as pretty much the same thing as money. When you buy a car you are trading money for another asset. You have as much value in your money and assets after the purchase as you did before, so it’s not considered an expense.
And since an asset is treated like money, if the asset gains value, that is considered as income. If the asset loses value, THAT is when the IRS says there’s an expense.
What that means for you if you have a car payment is, you cannot claim the car payment. It’s the same thing as claiming the purchase price of the car, which you cannot do. BUT you can claim the depreciation. Basically, it’s a way of claiming the cost of the car but doing it over a five year period.
Of course I’ll throw a wrench in here. You CAN claim the interest portion of your car payment at the percentage of your use. You claim that a bit differently, that doesn’t go under car expenses.
But you CAN claim a Lease payment (but when you do, you can’t claim depreciation).
Here’s the thing: When you lease something, you don’t technically own it. A lease is really a long term rental. In that situation, the expense is actually happening when you make the lease payment. But since you don’t own the vehicle, you cannot claim the depreciation.
If you claim actual miles in the first year you have the car, you may not be able to use the standard mileage deduction for that car in later years.
It’s not as easy as switching back and forth from one year to the next. It all has to do with depreciation, where in a lot of situations once you use depreciation to get the actual cost higher (usually the first two years you own the car), you cannot switch back to using the mileage deduction. The problem with that is that in the 3rd year and later that you have a car, you can’t claim the huge amounts of depreciation any longer.
In Bob’s situation, he may have been able to claim $1,500 more using the actual method. But in future years when he cannot claim nearly as much depreciation, he would probably be much better off with the mileage deduction. If Bob thinks he’ll be driving as a self employed business person for a few years, he might figure that his deductions over the next three or four years would be greater if he just sticks to the standard mileage deduction. Bob may have to choose between saving a little more on his taxes for this year, or saving less this year in exchange for much greater savings in years to come.
You need to track for each car separately.
Your decision to use standard mileage or actual expense is one you make on a car by car basis. Maybe Ron’s got a 22 year old beater that doesn’t cost that much per mile, but his wife has that nice new Subi that he drives when his car is in the shop. He’s going to want to track the miles and the expenses for both cars. He might figure out that the 58¢ per mile makes more sense on the Buick but the Subaru he’ll claim the actual costs.
You still have to track your miles when claiming actual expenses as a delivery driver for Grubhub, Uber Eats, Doordash, Postmates, etc.
Here’s the deal: When we are using our personal car and/or filing individual taxes, the IRS is going to assume that the use of the car is for personal purposes. If we are going to claim we use it for business, we have to have proof. If you drove 75% of your miles, you have to be able to prove you drove those miles in the same way you have to prove those miles whenusing the mileage deduction.
Actual cost is called actual cost for a reason.
I think a lot of drivers get this idea they have this incredible windfall. The thinking is that gas doesn’t cost 58 cents a mile. If we drive so many miles that we can write off all our expenses it adds up to a lot of tax free income. But a lot of people can be surprised by the fact that your actual cost isn’t as far below the 58 cents as you might think. Especially if you have a newer car.
We tend to dismiss depreciation as a real cost. It’s just a paper thing, right? Folks, depreciation is VERY real and it IS a cost. Bob had $35,000 in cash. He used it to buy his Subaru. Two years later Bob sells the Subaru but he can only get $20,000 for it. Bob has cash again, but now it’s only $20,000. Bob had $35,000, now he only has $20,000. THAT is a loss. Once he sold the car, that loss or expense became very real.
And in the real world (not the IRS calculations world) the kind of miles that we typically drive have a greater impact on that depreciation. Go pick a car and run its value somewhere like Kelly Blue Book. Then go and run the same valuation where everything is the same but this time you added 40,000 miles. The more miles you put on your car, the faster it wears out or the less you can sell it for. That’s very real.
The whole point of this is that using your car for business IS cutting into your profits more than you might realize. Be aware of that actual cost of using your car, and understand if and when you really aren’t making that much money because of that cost.
Is it better to claim actual expenses or the standard mileage deduction as a delivery driver for Postmates, Uber Eats, Grubhub, Postmates or any other gig companies?
The vast majority of the time, I think it’s going to be better to claim the standard mileage deduction. With the kind of miles we put on our cars, it’s really unusual for actual costs to be higher than the 58 cents per mile.
Here’s where I come down on it: I’m going the standard mileage route. It is simpler. When you do actual value, there are a whole lot of weeds you have to wander into that can get complicated. You also want to look at the long term view – will a little bit of savings now with actual expense method cost you much more in future years now that you prevented the ability to USE standard miles?
A side note: if the actual cost of my car IS more than 58 cents a mile, no way in hell am I driving that for delivery. That IS an actual expense, meaning I have way too little left over when I’m done. That’s not good business.
Track your miles. Track your costs. Know both. And make good decisions based on what you know.
The Delivery Driver’s Tax Information Series
- Introduction to the Delivery Driver’s Tax Information Series
- Your Taxes are Based on your Profits, not Revenue
- Understanding your Revenue: Money In
- Understanding your Expenses: Money Out
- Filling Out Your Taxes
- Preparing for next year: How much should I save?