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How do I get started on last year’s taxes?

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We made it.

2020 has been kicked to the curb: Good riddance, don't let the door hit you on the way out. We're not even going to thank you for your service, you were that kind of year.

Except as an independent contractor with gig economy apps like Doordash, Uber Eats, Instacart, Lyft, Grubhub, Postmates (the list goes on) is 2020 still haunting us from its very recent grave?

As in, I haven't done anything about my taxes yet!

A contractor for Doordash and Uber Eats looking bewildered as she gets started on her taxes

Now what?

Here's the important thing to remember:

There's still time!

As I write this it's still early January. Tax day is more than three months away. You've got time.

However, having time doesn't mean you should procrastinate. As a contractor for all these gig economy apps like Doordash, Uber Eats, Instacart, Lyft, Grubhub and others, taxes are quite different than they are as an employee.

The best way to keep from being blindsided is to get started now.

Why is it so important to get started on taxes now if they're not due until April?

There are two reasons that stand out to me:

  1. Knowledge is power.
  2. If you're going to owe money, now's the time to know how much so you can be ready to pay it.

Knowledge is power

I don't know about you. I do know that for me, waking up with this realization that something big like taxes is staring me down can be more than a little stressful.

Especially if you have no idea what you're going to owe.

Sitting down today and starting to get a feel for what you're looking at will give you more peace of mind.

I think because of the panic and stress that go with things like taxes, if you wait, the panic and stress build and it just makes it easier to wait further.

But if you start working on it now, you know where you sit. And that gives you a chance to put a plan together.

It puts you in control. That's huge.

Now's the time to know what to expect, so you can plan for it.

When I say you have a lot of time, that's an important thing. It's not so that you can just sit on things. It's because you have time to get things ready.

Let's say you will end up owing $1500. That's not easy money to come up with, right? That's the reason a lot of us are in the gig economy to begin with. It's extra money, it's a great way to make ends meet.

But if it's fifteen weeks until tax day, that's $100 per week. That's a lot more manageable.

Now you know what you're looking at. You know that if you do 10-12 more deliveries or so many fares or tasks per week, you've got it taken care of.

If you wait another month to find out, now you have to come up with $150 per week. That's a little harder to do, isn't it? Or you can wait til April 15 and try to pull the whole $1500 out of thin air.

Get started now.

How to get started on taxes as an independent contractor for Doordash, Uber Eats, Instacart, Lyft, Grubhub and all those others.

Important disclaimer: This is not tax or professional advice. I am not a tax professional. My role is to find the information out there, try to assemble it in a way that makes sense so that you have an idea where to get started. However, your situation is going to be completely unique from that of anyone else. you should seek out a tax professional who understands independent contractors and gig economy work who can help you with your own personal situation.

Which leads me to the first step.

1. Get a tax professional.

I can try to help you understand your taxes. I have a series of articles called the tax guide for independent contractors. I'll refer to some of those articles as I walk through these steps.

However, one of the most expensive mistakes you can make is to try to do it all yourself. I can try to inform and educate, but a tax professional can sit down with you and help you put it together in a way you can be a lot more comfortable is done right.

By a tax pro, I don't mean someone at one of those big box tax places. Most tax preparers are trained on how to use their software, and many of them would be lost if they tried to walk through your taxes without the software. You want to sit down with someone who actually understands the tax code and accounting and all that.

2. Don't wait for your 1099's.

You want to know how much you earned before you get your 1099-NEC statements from Doordash, Instacart, Uber Eats, Lyft, Grubhub, Postmates or whoever else.

If you earned more than $600, most of those apps will send you a 1099 form to tell you what they paid. Those are usually sent out right at the end of January.

The reason you want to know now is:

  1. It's incredibly important that you start now and not wait.
  2. Gig economy apps, especially Doordash, have been notorious for sending out inaccurate 1099's. It's amazing how often those mistakes report more than what you actually made. If you don't know the form is wrong, you could end up paying a lot more in taxes.

Take the time and add up all your income.

Don't rely on the app. You can't even get all the information from Doordash. For some reason they don't keep the full year's information anywhere that you have access to.

Go through your bank records. If you took instant cash or fast pay, make sure you're adding all those up. Anywhere you had your money sent, to a debit card or direct deposit.

If you have access to bank statements on your accounts, you can do this pretty easily because they'll have all the deposits listed together.

Get a list of every single deposit you received. If you worked for more than one app, list your deposits from Doordash, Uber Eats, Instacart, Lyft, etc. separately.

If you did instant cash and had to pay a fee, add those fees to your totals. For example, if you took 20 instant cashouts and were charged $1.99 for each one, make sure that you add the $39.80 into your income.

That's because if you earned $100, that's what Doordash etc are going to report. However, you only had $98.01 deposited. Your income is the full $100. (But that's okay – you can also claim the quick deposit fees as an expense).

3. Get a list of all your expenses.

First, print out your mileage logs and get your total business miles. (While you're at it, make sure you know how many total miles you drove).

If you didn't record your miles, this article will help you see if you can still recapture any of the miles. You might have to take some time to do that, but think of it as getting paid for that time.

Every mile you drove reduces your income by 57.5 cents (2020 – it will be 56 cents in 2021). That reduces your tax bill by anywhere from 9 to 15 cents. 15 cents isn't much. However, 15 cents times 10,000 miles is $1500 in tax savings.

Now get a list of all your other business expenses. Delivery bags. Sanitation supplies. A percent of your phone charges. You can read up here on the non car expenses that you had.

Do you have a car loan? Add up all the INTEREST on your loan payments. You can claim that interest for the business percent of your use. For example, if you put 20,000 miles on your car, and 10,000 miles was for business, you can claim 50% of the interest.

4. Enter your information into a bookkeeping program.

There are ways you can keep track of everything without a program. However, one of the reasons I say to use a program that is designed for self employed contractors is that it knows what to do with the information.

You can get reports that are going to give you exactly what you need to enter your information for your business. Some will give you tax estimates based on your profile.

I prefer Hurdlr. I've tested several and the free version of Hurdlr is better than some of the paid programs in my opinion. Hurdlr has a paid version that provides even more detailed tax reports that can come in handy, but you can get most of what you need with the free version.

Quickbooks Self Employed and GoDaddy Bookkeeping are two other programs that are well designed for hte independent contractor and not difficult to use.

I know that Stride Tax is a popular program for a lot of drivers. I won't tell you to switch away from it. However, if you're using it, you may have already discovered it's difficult if not impossible to put in certain expenses. There's nowhere to put your car interest, for example.

The bookkeeping links are affiliate links, so I may receive payment if any items are purchased. Just wanted to be up front about that, but I will tell you that I'm picky about what I recommend whether or not I get paid.

Enter your expenses and your income.

The nice thing about the programs that I listed is that they give you the ability to use either your phone or your desktop or laptop. Personally I do a lot on my phone. However, when it comes to things like writing or entering information, for me it's a LOT faster using an old fashioned keyboard and computer.

You can do one of two things.

You could save time and add everything up and just enter the totals.

Or you could put everything in transaction by transaction.

The advantage of entering every transaction is that the program will do the math for you. And now you have an actual record that can be meaningful if it ever comes to an audit.

If it were me, I would enter every income and expense transaction. And then I'd add up the monthly totals for my miles and enter one mileage transaction for the last day of each month.

The following videos were made for some articles about some of the bookkeeping apps, but can be helpful when it comes to figuring out how to put information into Hurdlr especially.

4. Estimate your overall tax bill.

Here's three ideas that you can use to get a feel for what you'll have to pay in. I think your best bet is to try all three and see how they all compare.

More often than not I think the first option is going to come in a bit higher. The second and third options should come somewhat close to each other. If there's a huge difference between the two there was probably a mistake somewhere.

Use the tax estimate from your bookkeeping program.

Hurdlr and Quickbooks Self Employed both have tax profile features. It's a lot like filling out a W-4 as an employee. You put information about filing status and dependents and it gives you a feel for what you might have to pay in for taxes.

This is the fastest option. Once you've entered all your information, you can pull the amount up that you need to save for taxes.

It's probably the least accurate. This method isn't going to take into account some of the extra deductions you might have or tax credits. It's more like trying to calculate your withholding for your paychecks than it is calculating your actual tax bill.

But it's still something.

Use a tax calculator.

There are some tax calculators out there. H&R Block has one you can try out here that doesn't cost anything.

This is sort of the middle option. It's faster than the next option we'll talk about. It's going to give you a better picture of your actual tax bill (or refund) than using the tax estimate from the tax programs.

Remember it's still an estimate. But it can get you in the ballpark.

If you're intimidated by trying to run a tax program (option 3), you'd rather leave that completely up to your tax person, this might be your best option.

Do a dry run of your taxes.

You could run your taxes now.

I don't mean file them. I don't even mean it's the only run.

What I mean is go through whatever tax program you use and start entering information. This is a quick run that is meant to get you in the ballpark. Don't worry about accuracy right now, that's not the goal.

I did this myself on January 1. Then, I used my wife's final paystub to enter her income information. I don't have forms yet about all my deductions, so I estimated.

This is going to give you the closest that you can get to what your actual tax amount will be.

Start the process. Enter your information, walk through it all. It's best if you can save your information because if you do end up using the program to do your taxes, you're close to being done.

I personally use H&R Block. I don't know how it works compared to anyone else but it's worked well for me for over ten years.

You can also try a couple of free options. H&R Block has a free file edition but it doesn't look like the free version supports Schedule C's. Credit Karma does look like they support Schedule C filing with their free program.

5. Get Started Saving on Taxes if you need to.

How much does it look like you will owe?

How many weeks between now and April 15?

Do the math. If you will owe $2000 and there's ten weeks, that's $200 per week.

That's a lot easier than trying to do $2,000 all at once. It's manageable when you break it up into smaller amounts, isn't it?

If you can't squeeze that much out of your current budget, do you have time to do more deliveries, rides or tasks? If you need $200 to save, can you get in an extra 20 deliveries or so?

Here's where I'm going to be blunt: If you can't do this part – saving the money you know you'll have to pay, it's time to give up the gig work. If you can't put money aside for taxes, you're not making as much as you think, and all you will do is dig yourself further and further into a hole.

Get an account that is separate from your checking and regular savings. One that isn't as easy to rob if you want to spend money on something else.
Save your money.

6. Educate yourself on taxes

I struggle with whether to make this step one or step 6.

It's important enough to make step 1. However, the reason I didn't is, if you haven't done anything about taxes yet, you need to get started. I didn't want you to use the ‘get educated' step as an excuse to hold off.

The other reason is, if you're doing the first several steps, that's giving you some education. Nothing is a better teacher than doing.

But the first six steps are giving you a number more than anything. Educating yourself helps you get a feel for the why behind the number.

Check out the tax guide on this site. Below this article I'll have a list of articles on how taxes work and all the different aspects.

If you understand how taxes work, that will give you a better feel for what lies ahead next year.

7. Make a tax deposit on January 15.

Especially if you'll owe more than $1,000.

That's because if you have to pay in more than $1,000 on tax day, the IRS adds some extra penalties and interest.

If it's before January 15 and you will owe more than $1,000, find out how much you can squeeze together and send that in to the IRS. You can read more about doing quarterly taxes here.

It's not hard. Figure out what you can send, pull up the IRS form, enter that amount on the form and send it in. Don't worry about all the calculations.

8. Get with your tax pro and file your actual taxes on tax day.

If you've done the work ahead of time, this part will be easy.

You've already done the homework. You already have all your expenses and income in a format they can use. And you've taken the steps to make sure that you have the money to pay your tax bill.

You might find tax day to be the least stressful you've ever known.

How to Get Started on Taxes with Doordash Uber Eats Instacart Lyft Grubhub etc

How to Get Started on Taxes with Doordash Uber Eats Instacart Lyft Grubhub etc

It's the new year and all of a sudden you get that "oh crap" moment.

Taxes are coming.

It's not time to panic, but it is time to start taking steps so you can get started and make sure you are covered. These 8 steps can help you get an idea what you're looking at and prepare for tax day.

Instructions

  1. Get a Tax Pro. The more intimidated you are about taxes, the more important this is. I try to inform with articles about taxes, but a tax pro can go over your personal situation and finances and make sure you're paying the least possible.
  2. Don't wait for your 1099's. Start figuring out your income now. Tax forms don't usually come out until the end of January, but you can start adding up your income today.
  3. Get a list of your expenses and miles. Start going back through all your purchases that you made for your gig business. List every item. Compile your yearly total miles that you drove for your business.
  4. Enter your income and expenses into a bookkeeping program. That's because a good program will do a lot of the extra work for you. The free version of Hurdlr is a good starting point.
  5. Estimate what you will owe (if any). There are a number of ways you can do this. Hurdlr has a good comprehensive tax estimate built in. You can use H&R Block's tax calculator. Or you can do a dry run on your taxes with a tax program.
  6. Educate yourself. I could make this step 1 but I also didn't want you to delay on getting started with the first six steps. You can learn more about taxes with our series of articles in our tax guide.
  7. Start saving. If you will owe money, start saving now. How much will you owe? How many weeks to tax day? Do the math. Figure out how much to save each week and set it aside.
  8. Make a tax deposit. If you're reading this before January 15, and if you'll owe money on your taxes, get a tax deposit in on January 15. This can reduce possible penalties and interest charges from the IRS that can happen if you have to pay in more than $1,000.

The Delivery Driver's Tax Information Series (Grubhub, Doordash, Postmates, Uber Eats, Instacart)

The Delivery Driver's Tax Information Series is a series of articles designed to help you understand how taxes work for you as an independent contractor with gig economy delivery apps like Doordash, Uber Eats, Grubhub, Instacart, and Postmates. Below are some of the articles

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?

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