What is the best way to track your expenses and do your bookkeeping as a contractor for Doordash, Grubhub, Uber Eats and other gig companies?
As we get into the last quarter of the year, some of you are starting to think about things like taxes and all that.
Do you know how good that sounds to a lot of people, to say 2020 is nearing an end? I think there's going to be one big party on New Year's Eve.
That said, do you know how you stand with your earnings and your expenses? Have you thought about how to keep track of all this? What are your expenses? What have you earned? How do you know what your taxes will look like?
We've talked a couple of times about taxes before, but today I wanted to focus more on, HOW do you track everything?
Bookkeeping for delivery contractors doesn't have to be THAT difficult
Not many of you are going to say bookkeeping is your favorite part of the delivery biz.
I'm going to go out on a limb here. I'm going to guess that bookkeeping is one of those things you may wish were never part of the deal.
Or you may be asking…
Wait, what? Bookkeeping????
Bookkeeping ranks high on the intimidation factor for a lot of people. This is often a “this is out of my league” kinda thing. An “I don't know how to do this” kind of thing.
It's not really that hard. In fact, I believe you can do it and do it well. Let's de-mystify the process a little, and once we do that we can figure out the best ways to do your bookkeeping for your delivery work with Doordash, Grubhub, Uber Eats, Postmates and all the others.
This is what bookkeeping is for contractors, in a nutshell:
Keep track of your income and expenses, and organize them.
That's pretty much it.
There is no one WAY of doing it that everyone has to do. I'm sure that how I do it is probably not the best way to do it, just because I'm nerdier than the average bear. I like my stuff in a way that I can analyze the life out of it.
As I wrote that down, it dawned on me:
And you're saying, “What's it?”
That's the answer to how you do things. It boils down to what fits for you. I said “I like my stuff in a way”
And really, that's what it boils down to.
What works for you?
What will allow you to accomplish what you need to accomplish in the way you want to accomplish it? Do you need something easy? Or do you want to analyze the heck out of stuff? Is cost an issue or are you willing to spend what it takes to make sure it's done well?
Why is bookkeeping even necessary for independent contractors?
Okay, let's be honest.
You don't have to do it. You seriously don't. It's totally okay to do this without bookkeeping.
Okay, time to stop reading and move on, right?
Before you check out though, please pay attention to this one statement:
You could choose to not do bookkeeping, but that choice can cost you thousands of dollars.
I don't know about yo, but I'd rather keep my thousands of dollars.
Why would failure to keep records cost us thousands of dollars?
It's your tax bill.
Would you prefer to pay taxes on a lot or on not as much? You're completely free to pay way too much in taxes. I won't stop you.
But if you'd rather keep some of that money, here's how you do it.
Keep track of your stuff.
We pay taxes based on our income. When we make more, we pay more. There's federal and state and maybe even local. AND there's Social Security and Medicare.
Here's where the bookkeeping comes in:
As independent contractors we're treated like a business. Our tax is based on our profit, not the money we get from gig companies. It's based on what is left over after our expenses.
But if you don't have a record of your expenses, Uncle Sam is happy to tax you based on the larger amount.
The thing is, we have to do these deliveries on our own dime. Doordash and Uber Eats and Grubhub don't care what it costs and it really isn't their business. They pay what they pay. If we can do it well and do it inexpensively, there's more left over. But if it costs us to get the stuff done, that comes out of OUR pockets, not theirs.
Which is why our taxes are based on what is left over. It's like any business, it costs money to operate your business.
So, you have a choice. Pay taxes on every penny you receive. Or keep track of everything so that you only have to pay on what's left over.
Keep Track of Expenses and Income
This is part one of your bookkeeping.
Keep a record.
It can be as simple as making a list of expenses as they happen.
Got a pen and paper? You can do it.
Do you have a smart phone? You can do it.
When you spend money for your business, write it down. That's not hard, is it? Make a note: Who did you pay? How much did you pay? What was it for? Can you prove it? Hang on to your receipt so you can.
What should you track?
Here's my first rule of what to track:
If you think it's related to your business, track it.The EntreCourier's First Rule of Bookkeeping for Independent Contractors
There's three things that I want to emphasize here:
Technically, miles are a form of tracking expense. But tracking those miles are just a different enough animal that I wanted to list it separately.
A lot of us worry, but what if I can't claim it? What if it's not legitimate? This isn't the time to worry about that. If in doubt, track it out.
And this is why I'm not a poet.
You can always find out later that you can't claim it, but that's okay. What I'm getting at is, you can find that out later and no harm no foul.
It's a lot harder to find out you COULD have claimed it, but now you have to trace back and find out if you have a record of it. It's easier to track it and not claim it, than to not track it and try to find it later.
Understanding what a business expense is.
I know, there's a long list of things that you can potentially call expenses. You're reading on Facebook that you should claim this or that. How do you know?
I think that's what intimidates a lot of people when it comes to bookkeeping for Grubhub, Doordash, Uber Eats. There are a lot of things people get wrong. How do you avoid that problem? Do you have to become an expert at all of this?
That's why I said track it. You can always let an expert help you later. It doesn't hurt to learn more, if nothing else that opens your eyes to things you might not have thought of. But that's why I go back to my first rule. If it might be, track it.
Now my second rule:
If the expense is reasonable and necessary for the operation of your business, it's an allowable expense.The EntreCourier's Second Rule of Bookkeeping for Independent Contractors
Okay, I may have borrowed that.
From the IRS.
That's kind of their overriding criteria. It has to be reasonable or necessary for operating your business. If it meets that criteria, there's a good chance it's a legitimate expense.
Understanding reasonable and necessary
Do you need that to make it possible to do business? You need your car, you need your phone. You probably need that cell phone holder.
Will that item make it possible to improve your business? You may not NEED that delivery bag from Amazon if Doordash or Grubhub already provided one, but maybe that bag holds more food or protects the food better. You may not need that Independent Delivery Shirt polo that I'm selling on eBay, but perhaps it helps you get in and out of the restaurant faster or helps with tips.
Are there things that aren't reasonable or necessary?
Getting a Maserati for your delivery vehicle might go beyond being reasonable.
Some will tell you to claim your meals while delivering. That one won't fly. The meals aren't a necessary part of your business. They're part of your day to day living. The only time they're a reasonable part of your business is if you're buying the meal for someone else in an effort to improve your business (such as discussing the referral program with a friend).
Ask yourself this question and be honest with yourself: Is it legitimately necessary to use this for your business or is it a reasonable way to improve your business? Or is it something you want to claim because you heard you could claim it?
The reasonable and necessary guideline will help you with a lot of your questions.
Your vehicle is an acceptable expense.
Track your milesThe EntreCourier's Third Rule of Bookkeeping for Independent Contractors
If you use your car for deliveries, the portion of time you use the car is a reasonable and necessary part of running your business.
That means you must track your miles.
I don't want to get into the weeds about all the details about car expenses. You can check out these articles that go into more detail about what miles you can track and how to track and all the differences between claiming actual expenses or the per mile rate.
But here it is in a nutshell. You can either track every single expense related to your car and claim the business portion of those expenses, or you can use the simplified Standard Mileage Rate (the IRS lets you claim 57.5 cents per mile in 2020). You can't claim both.
Track both. That's not quite at a rule level statement but important enough to be a very strong suggestion. You should know what it's really costing you to operate your car.
Either way, track your miles.
The IRS requires that whether claiming miles or actual expenses. If claiming actual expenses you need to know what percent of miles were business and you can't know that without tracking. You have to back those miles up either way.
Whether writing down odometer readings or using GPS, track every mile that you drive where you are available with the intent to accept deliveries.
And don't forget to track your income.
Keep your own record of the money your delivery business earned.The EntreCourier's Fourth Rule of Bookkeeping for Independent Contractors
It's not just expenses you want to track.
Keep a running total of what you earned.
Okay, but won't the gig companies send you that information? Can't you rely on the 1099 forms they give you?
They MAY send you a 1099 form that tells you how much they paid you.
But you can't rely on them. Doordash is notorious for getting it wrong. Uber Eats uses a different method and different kind of 1099 in which they won't send you one unless you made $20,000 or more.
You can't rely on the apps. The earnings report on many of the apps may not include certain payments. Some apps only go back a few months (*cough* Doordash *cough*).
You need your own records so you know when they had it wrong.
Organize your expenses and income
Organize your income and expenses into transaction typesThe EntreCourier's Fifth Rule of Bookkeeping for Independent Contractors.
The second part of bookkeeping is, when you've tracked the transactions (both income and expenses) now you need to organize them into transaction types.
Here's another area where people get intimidated.
Don't. It's not that bad.
Again, a lot of people get freaked out because it's hard to know all the IRS rules and all that.
You don't have to know all that. You just have to have an idea what kind of expenses are like other expenses of the same kind. And then organize them that way.
There are certain expense categories, but don't get stressed about them.
When you file your taxes, you will report your income and expenses for your business on a form called Schedule C.
And real quickly – I should throw this while mentioning the Schedule C. A lot of people think they can't claim their miles or expenses because there's not enough there to itemize their deductions.
YOU CAN CLAIM YOUR BUSINESS EXPENSES EVEN WHEN TAKING STANDARD DEDUCTION.
That's because expenses for your business are reported differently. Itemizing or taking the standard deduction make no difference. You can claim your expenses. So track and organize them.
Okay, got that out of my system.
That Schedule C has a whole list of expense types. What you (or your tax pro) will do is enter the total amount of income, and the total amount spent for each expense type.
Ultimately you want your records to make it easy to know how much you spent for each expense type. I'm not even going to try to begin covering those in this episode.
But here's where people get freaked out. They think they have to know the expense types, they think they have to know all the details about what fits where.
You don't. If you're not sure what IRS category it fits into, just keep track by a more specific category.
Not sure if your cell service goes under Office Expense or Other Expense? That's okay, the experts don't even agree on that one. Just keep all your cell service expenses in its own category and your tax pro can help you figure it out later.
Do the same with income. I keep track of my totals from Doordash, Uber Eats, and Grubhub. The IRS doesn't require that kind of detail but it helps me (remember what I said about being a nerd?).
What's the best way to keep it all organized?
There are a lot of tools. There is none that I can tell you is THE way to go.
Find the tool for organizing your transactions that makes it easiest for YOU to do soThe EntreCourier's Sixth Rule of Bookkeeping for Independent Contractors
You want something you can use. You also want something that won't discourage you from doing it.
If a paid program saves you time and makes it easier to keep track, that's the way to go.
If you're on a tight budget and feel okay jotting things down, keeping a written notebook might make more sense.
There are free programs. For some they are awesome, for others there are just too many problems.
Find the one that works for you.
Here are some tools that could help you.
Remember here, the objective isn't to do your taxes right now. The goal is not to be an expert on what to track. It's not even about accounting.
I don't want you to think you have to be at a certain place or know certain things before you can get started. You can start now. Today.
Your goal is to track anything you think might be an expense, and give it a category. The question is, what is the best way to do it?
I'm going to throw out a few suggestions. There are tools that can help you. They have varying degrees of difficulty and involvement. My guess is you may start with something simple and then as you get a feel for things, move up to something else.
Pen and Paper
If you prefer to just write things down, get a notebook.
Whenever you buy something, write it down.
Create a page for each of your gig apps. One for Doordash, one for Uber Eats, etc. Every time you get paid, write down the date and the amount on the page for that company. Maybe keep a running total, so that it saves you the time to add it up later.
With any kind of expense, keep a separate page for it. Your phone service goes on one page. The phone lease payment goes on another. Gas on another. And so on.
It's cheap and it's easy. Don't worry if you're grouping things by tax categories. Just group things that very obviously belong together. The main thing you are doing is keeping all the income and expenses organized. You can figure the rest out later.
Use a Spreadsheet.
This is pretty much the same thing as pen and paper. But the nice thing is, when it's on a spreadsheet, you can let it do the adding for you. You can choose to keep everything listed in columns across one page, or create pages for each item.
The video above shows an easy way to set one up. You don't have to know all the secrets of doing ExCel or Google Sheets. Just create a place to put your income or expense and keep track.
Use a program
There are programs designed to help you do all of this. There's free stuff and there's paid stuff. Generally you get what you pay for with the free stuff. I'll list a few. Some of these links will be sponsored, meaning I can receive some pay if you buy off them.
The advantage of a program is it's designed to do exactly what you want to do. It is set up to make some of the organizing easier. Sometimes you have to know more about the categories, and that can make it intimidating. But here are a few you can check out.
Stride is a free app that has some basic expense tracking. It also has a GPS mileage tracker. It's designed to make things as simple as possible. My biggest complaint with Stride is if you have an expense that doesn't fit the expense categories they show, you can't put it anywhere else. They do leave out some important ones. They also don't give you the ability to track car expenses separately from your miles.
Quickbooks is about the best known name in bookkeeping software. A lot of businesses use them. They have a low cost version designed for the independent contractor like you and I. It also has a GPS mileage app. There's a lot to like, but it doesn't have the flexibility to keep your Grubhub, Doordash, Uber Eats income separate. You can read my review of Quickbooks Self Employed here.
Get it in the Android PlayStore
Get it in the App Store
I like this one better than I like Quickbooks. It's easy to use, it can link up with your bank accounts and it's designed to make it as easy as possible to figure out your expense categories. It costs less that Quickbooks Self Employed and has more flexibility for customizing income and expense categories. You can manually enter your mileage amounts but there's not a GPS app. You can read an overview here.
I'm just getting a look at Hurdlr as I speak. So far, I like what I see. It's more flexible than Quickbooks, it has a GPS app, and seems well designed. Stay tuned, I'll be putting out a review soon after I've had more time to add information to it.
Quickbooks Online or Freshbooks.
These are more full powered accounting programs. You can track more and create more flexible reports and everything but it's not as well set up for incorporating your mileage expense or for reporting in the way you need for a Schedule C. These are much better options if you need a more powerful program but might be overkill for a lot of us.
My last rule:
Have someone who understands your taxes take your records and do your taxes for you.The EntreCourier's Seventh Rule of Bookkeeping for Independent Contractors
If you aren't sure, get help.
If you're slightly fuzzy on if you know the taxes, get help.
It is worth the money to have someone who understands how it works look things over, and put it all together for you.
Your job is to track it, to organize it all in some way where in the end, you have the total you spent on each different type of purchase. You have the total of what money you brought in.
Someone else can look at it and translate it into your taxes.
My main thing is, don't wait until you know to get started. Just start tracking, start organizing, and let someone take it from there.
And oh, by the way, when you pay them to take care of it for you?
Make sure to keep a record of it.