Okay, it's tax time. You've done a great job keeping track of your business expenses, tracking your miles, all of that.
Now what? What do you do with all that information? Where does it go on your tax form?
How do you wade through all that stuff and figure out where to put all this?
As an independent contractor in the gig economy, delivering for food delivery services like Doordash, Uber Eats, Grubhub, Instacart, etc., or driving rideshare for Uber, Lyft and others, we are considered small business owners.
Unless you've incorporated your business such as creating an S-Corporation or C-Corporation, you are probably a sole proprietorship. You may have created a single-member LLC. That means you will enter your expenses and miles on a form called Schedule C.
If you have incorporated, you should probably get a tax professional. In fact, even as an individual, the best advice I can give you is to get a tax pro. Do NOT use this or any other internet article as tax advice. If you need advice for your own tax situation, get a tax professional.
Your Schedule C, NOT your 1099, is the closest thing you have as an independent contractor to a W-2 when you deliver for gig apps like Grubhub, Instacart, Doordash, Uber Eats, Postmates and others.
You will put your 1099 information and other earnings on the business income part of Schedule C. You'll then put your expenses down. Your profit, the part left over as expenses, it the number that you move over to your 1040 tax form.
We've got several other articles about your income, your 1099 forms, and expenses. What I want to do here is give an overview of the Schedule C as a whole, and dig into the parts that might cause some confusion when filling it out.
If you want greater detail, you can check out the IRS instructions on how to fill out Schedule C.
Schedule C: Profit or Loss from Business for Contractors with Grubhub, Doordash, Uber Eats, Instacart and others.
Okay, the title on the Schedule C doesn't list all those gig platforms. But if you're working in the gig economy, it applies to you.
When you deliver as an independent contractor for these gig companies, this is what it's about: Determining the profit. It's the PROFIT, not the money coming in, that is taxable. And sometimes, contractors will end up with a loss.
Step 1: Entering your personal and business information.
This is lines A through J on the form. Most of this is self explanatory, but let's talk about a couple of these. Obviously, you start off with your legal name and Social Security Number.
Line A: Describe your business.
This is where you're going to put a simple phrase that describes what you do. Personally, I put down “Third party gig delivery.” The wording isn't as important, I don't think they get too caught up on that, but if your return gets flagged for review it helps a human get a quick look at what it is you are doing.
Line B: Maybe one of the most important parts of this form.
The IRS has two whole pages of business types to choose from. There are a lot of times you can find that more than one actually apply, but you want to try the one that best fits what it is you do.
For those of us who do delivery work primarily, the best category I found for our work is Transportation and Warehousing and choose 492000 Couriers & Messengers.
If your income is primarily Rideshare, you might choose 485300 Taxi, limousine, & ridesharing service. Some couriers choose the Rideshare option so it doesn't confuse them with something like a more structured messenger system. I think they're close enough that either one works well.
Finding the right classification for your business can be important. IRS computers are looking for patterns that seem out of place for the type of work you do. If something seems out of place, the computer can flag your return for an audit.
If I'm filing taxes for my business as a website publisher, thirty thousand business miles might seem very much out of place. The IRS computers could say “hey, you might want to look into this one.”
But if your business classification is one that fits the massive amount of miles that we put on our cars, those miles may not seem so out of place.
At the same time, you need to be aware that a lot of office type deductions are less normal, because our work doesn't typically involve running an office.
This is why a lot of people would advise against using the home office deduction: It's unusual to conduct much business from home.
If you do other types of gig or self employment work that differ from one another just enough, you may be better off treating it as separate businesses. Keep earnings and expenses separately, and file separate Schedule C's for each one.
Entering your business information.
If you have created a legal name or trade name or DBA for your business, you would enter it here. That's not as common for delivery work unless you've created an LLC or legal entity. If you have created one with the IRS, you will enter your EIN (or Employer identification number) for your business.
If you have a separate address for your business, you would enter the business address on line E. The IRS instructions note that you don't need to enter your home address a second time if your home address is the same as your business address.
You will be asked about your accounting method. This is almost always going to be “Cash.”
If you have to ask what it is, I'm pretty sure it's cash. You have to know your accounting well enough to use Accrual or any other type of accounting, to the point that you probably wouldn't be asking this question.
For the kind of work we do where it's based on our deliveries, it's pretty safe to say yes to line G about whether you participated materially.
If this is the first year of doing delivery work of this type, check the box on line H. If this is only the first year for a particular platform (say you did Uber Eats the year before and added Grubhub this year) you wouldn't check that box.
You would only mess with I and J if you paid out money to a subcontractor and claimed that money in your expenses.
Step 2: Fill out your Part I (Income) and Part II (Expenses) for your delivery work with Grubhub, Uber Eats, Postmates, Doordash or others.
This gets covered in other articles in this tax series so I won't go into detail here.
You enter 1099 and other income in Part I. Your total or gross income goes on Line 7.
Part II is where you enter all the totals of what your business spent in each category. You add up of those expenses, and put the total expenses in Line 28.
On line 29, you subtract your expenses from the income and put the total amount here. If your income was more than your expenses, that number is going to be a positive number ($10,000 income minus $6,000 expenses will be $4,000 tentative profit. $10,000 income minus $12,000 expenses will be $-2,000 (that's NEGATIVE $2,000).
Step 3: Figure out your home office Deduction.
Line 30 is where you determine if you can claim a home office deduction. If your business is strictly doing delivery work, you probably cannot claim this deduction.
There are two requirements as to if you can claim this:
- Firstly, it has to be space used exclusively for business. Therefore, you cannot claim your kitchen table. You cannot even claim a home office if it also serves for personal use. It has to be dedicated space for your office.
- Secondly, it has to be used significantly for business. Sitting down a few minutes here or there to do your books doesn't quite cut it. For most of us, we barely do anything outside the delivery work itself, so we'd have a hard time convincing the IRS that this applies in our business.
If you have significant business use of your home and can legitimately claim the deduction, you should claim it. Make sure you meet those requirements.
Since we generally don't buy and re-sell items, I'm not covering Part III Cost of Goods Sold.
Step 4: Figure out your net profit.
Subtract your home office deduction, if you have one, from your tentative profit on line 29. You'll put your net profit or loss on line 31.
If your expenses were greater than your income, you have to choose which box to check for 32. You are asked if your investment is at risk.
What does that mean???
The money you use to run your business is your investment. Money you put into your car is your investment. For most of us, that means that yes, we are at risk for losing our investment and you would check 32A.
If you have special investments that would qualify, I'm pretty sure you've got an accountant to advise you of that. You should anyway. For more detail on how that works you can check out this article on At-Risk Rules at LoopholeLewey.
Step 5: Part IV: Information on your Vehicle.
Most of us use our cars pretty heavily for delivery. If that is the case and you claim vehicle expenses, you need to fill this section out with information about your car.
Do not fill out Part IV for motorcycle, scooter or bicycle expenses. Those are treated differently.
If you used more than one vehicle (such as if you replaced your car during the year or if you switched back and forth between cars), fill out a Part IV for each vehicle.
In part IV, you will be asked when you placed your car in service for business purposes. If this is the first tax year you file an IRS Schedule C, it would be the first day you did any work for which you tracked your mile to deliver.
You need to enter how many miles you drove the car for business, for commuting, and for other (any personal miles).
Questions 45 and 46 are self explanatory. Did you use your car personally, and do you or your spouse have another car that you use personally?
Think about this: What if you claim no personal miles and don't have another vehicle? Do you think the IRS will believe you if you said you didn't have any personal miles on that one car?
Finally, PAY ATTENTION TO QUESTION 47: Do you have evidence to support your deduction? If “Yes” is the evidence written?”
You are stating that as of the day you file, you have documentation of your vehicle use. You want to make sure you actually HAVE that documentation.
Wrapping up your schedule C
The last part, Part V, is really an extension of the expenses side. It's where you'll list items that didn't fit into the expense categories listed in Part II.
Because of that I'm not calling this Step 6.
There's a lot of information for this form, isn't there? The bottom line is, it's all about what did you earn? What did you spend? What's the difference?
The difference is what gets moved to your personal tax return. That information impacts your self employment tax and your income tax.
The bottom line is, the Schedule C isn't your taxes. It's a piece of a larger puzzle. It helps you figure out what of your gig or self-employment income is actually taxable.
Your self employment tax IS based directly on your Schedule C tax form (or if you had multiple businesses, the sum of all your Schedule C's).
If you had a profit on your schedule C, that's added to all your other taxable income to go into the puzzle for figuring your income tax.
- Enter your personal and business information. Who are you? Is your business registered with a name anywhere? When did your business start and what does it do?
- Fill in your income and your expense totals. We don't go into detail here, but you can learn more about your Schedule C Income and your Schedule C expenses at the links given.
- Determine what if any home office deduction you qualify for. As a gig worker who doesn't work substantially from home, you probably don't qualify.
- Figure out your net profit. Subtract expenses and home office deduction from income. That is your net profit (and this will be your taxable income for your business)
- Fill out Part IV with information on your vehicle. (One form for each car). Provide information on when you started using your car, total miles, business miles, and if you have records
These steps will walk you through the basics of how to fill out your Schedule C when filing your taxes as an independent contractor for delivery apps like Grubhub, Doordash, Uber Eats, Instacart etc. Normally your tax pro or your software program will fill this out for you, however this gives you an overview of how the Schedule C is made up and what the different parts of the Schedule C are.
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Tax Guide: Understanding Your Income
The following three articles help you understand what your real income is as an independent contractor.
Tax Guide: Understanding Your Expenses
The following eight articles help you understand the expenses you can claim on your Schedule C. Most of these are about your car, your biggest expense.
Filling Out Your Tax Forms
Once you understand your income and expenses, what do you do with them? Where does all this information go when you start filling out your taxes?