How to Fill Out Schedule C for Delivery Driver taxes

You'll hear a lot about IRS form Schedule C if you've done much research on delivery driver taxes. 

What exactly is form Schedule C, and why is it so important? Can we file taxes without it? 

Schedule C is the linchpin of your independent contractor taxes. It's the form that lets you claim business expenses regardless of whether you itemize your tax deductions. Schedule C can make a huge difference in your taxes. 

We'll take a look at this critical document, how it works, and how to fill it out:

• What is Schedule C?
• Entering your business and personal information
• The five parts of Schedule C
• What happens after Schedule C is completed?

About this article

The purpose of this article is to explain how form Schedule C works, especially for gig economy delivery contractors. It's also one of several articles in a series about delivery driver taxes. We'll link to other articles where appropriate, and you can view the entire list of posts here.

Understand that this is about independent contractor taxes in the United States. Other nations have their own tax regulations and may do things differently. You should seek a tax professional to help you with your local and national tax situation.

This is not tax advice. The purpose is to educate and explain how U.S. taxes work for independent contractors. If you need advice about your particular tax situation, you should seek a tax expert who can guide you individually.

What is Schedule C and why is it important to independent contractors?

The best way I can put it is that Schedule C is the closest thing gig workers have to a W-2 form. It is the actual earnings statement for your independent contractor business.

1099 forms you receive from Doordash, Instacart, Lyft, Grubhub, Uber Eats, or other gig companies don't do that for you. All that those forms do is report your business's income.

You are a sole proprietor if you're an independent contractor (unless you've created a partnership, an LLC or incorporated in some other way). Because you provide services as a business rather than as an employee, your taxable income is your profit. In other words, it's what's left over after expenses.

It's up to you to provide the correct information to the IRS to determine taxable income. Schedule C is the form that does that. On that form, you list your income, then add up your expenses. Subtract expenses to get profit. Profit then gets moved over to your tax form as personal income.

Entering your personal and business information.

The first part of the form is a section where you enter identifying information about yourself and your business. 

This is the part where we'll spend most of our time for this article. That's for two reasons:

• It's the part of Schedule C that often creates the most confusion
• We go into much more detail in other articles about the income and the expenses you can claim for your business. We'll provide links to point to those articles where appropriate.

Small businesses that report income on Schedule C are known as pass-through entities. That means that the business itself is not taxed by the federal government. Instead, profits pass through to the personal tax returns of the business owner (or owners).

The first part of Schedule C aims to identify both the business and the individual (or individuals) who pay tax on the business income. As we look at these items, we'll look at them as a typical independent contractor in the gig economy would fill them out.

Name and Social Security Number.

This part identifies the individual who will pay taxes on the profits from the business. Enter your legal name and social security number as it appears on your 1040 tax form.

Line A: Describe your business.

The IRS asks for the “principle business or profession, including product or service.” Here you provide a brief description of what your business does.

I use something like “third-party on-demand delivery service” I don't think the IRS is too worried about whether you phrased it exactly right. The main idea is to provide a general description.

Line B: Business Code

The IRS has more than two pages of business codes to choose from (pages C-18 through C-20 of the 2021 instruction book). Many businesses fit into more than one, so you want to select the code that best describes your business.

The best code for those of us who do mostly delivery work is under Transportation and Warehousing with code 492000 Couriers & Messengers.

Rideshare drivers might choose 485300 Taxi, Limousine, and Ridesharing Service. 

This number can be pretty important. There are several different business types, and each has its own patterns as to the kind of expense. 

It can be especially useful in avoiding red flags for audits. The mileage allowance is one of the most frequently abused business deductions. For most small business owners, 30,000 business miles is enough to get someone's attention. However, higher mileage is more typical for rideshare and delivery. 

At the same time, you're also telling the IRS that you probably don't have office space or have qualifying home office use. Therefore, your business code could avoid some red flags but raise others.

Line C: Business Name

Only fill this out if you have formally created a business name, such as if you have incorporated or created an LLC. Most delivery contractors are sole proprietors and would leave this blank.

Line D: Employer ID Number (EIN)

If you have received an Employer ID Number from the IRS, enter it here. Getting an EIN as a sole proprietor is possible without incorporating or creating an LLC. For example, many independent contractors get an EIN to open a business banking account.

Line E: Business address

Most gig contractors will enter their home address as it appears on their 1040 form. The exception is if you have an established office distinct from your home.

Line F: Accounting method

You will most likely check “Cash” as your accounting method. If you use Accrual or another form of accounting, you would probably know it. Check with your tax professional for further verification.

Line G: Do you materially participate in the operation of your business?

This question asks if you are actively involved in the operation of your business. The answer is almost certainly yes.

Line H: Did you start your business this year?

If this is the first year you filed a Schedule C for this type of independent contracting, you should check this box.

Lines I and J: Will you need to file a 1099 form?

Many contractors get confused by this question. Understand that it does NOT ask if you RECEIVED a 1099 form. It's asking if you need to send a 1099 to someone else.

You would only check this off if you paid someone else $600 or more to perform work for your business. For example: if you hired a subcontractor to do some delivery work for you.

The five parts of Schedule C

Five sections of Schedule C get filled out after you've filled out personal and business information. We've written entire articles to cover many of these, so we'll link to those articles rather than go into extra detail.

Part I: Income

This is where you enter the income that your business received. On line 1, you total up earnings and customer tips from the different gig companies and enter the total here.

Here is where you also deduct the cost of goods sold, though that's an unusual item for most delivery contractors. This article goes into more detail about delivery contractor income.

Part II: Expenses

The IRS requires you to break down your expense totals by category. They have twenty such classifications. We go into detail here about each category and typical delivery driver deductions for each.

Line 28 adds up the total business expenses. Line 29 subtracts expenses from income to establish a tentative profit or loss.

If you qualify for a home office deduction (most gig economy workers do not), enter that on line 30. Subtract it from your tentative profit to determine net profit. Note that you can not take the home office deduction if you had a business loss for the year.

Part III: Cost of Goods Sold

This section is used as a worksheet to determine the Cost of Goods Sold figure entered on Line 4 of the income section. Cost of Goods Sold refers to the cost of materials and production of items sold by your business. Gig economy independent contractor work rarely involves product sales, so we won't discuss this item in further detail.

Part IV: Information on your Vehicle

This section is where you enter additional details about your vehicle deduction (line 9 in the income section). It asks when you first used your car for business and how many miles were driven for business, commuting, and other purposes.

Question 47 of this section is critical. It asks if you have evidence to support your deduction (a) and if the evidence is written (b). The implication is that you can not claim vehicle costs (either mileage or actual expenses) without evidence of business use. You can read more about how to track your miles to get such proof.

Part V: Other Expenses

Suppose you had expenses that did not fit the business categories in lines 8-26 in business expenses. In that case, you must enter the total of other expenses on line 27. In Part V, you break down those “other expenses with a description and total for each.

You can read more about typical contractor deductions in the “other” category.

What happens after Schedule C?

Once you have determined your net profit (line 31), two things happen with it.

First, that net profit is added to any other income in the Income Section of your 1040 tax form. We write more about how your business profit determines your income tax bill.

Second, the same amount is entered into IRS form SE, which determines your Self-Employment tax. This article explains more about how Self-Employment tax works for delivery contractors.

The Delivery Driver's Tax Series

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