What will you have to pay on tax day as a delivery driver who contracts with gig economy companies like Grubhub, Doordash, Postmates, Uber Eats or others?
I have no clue.
You might owe a lot. You may get a hefty refund.
I'm not here to answer that question. That's because there are so many factors that impact whether you pay in a ton or get a bunch back:
- Do you have other income?
- Are you filing single or married?
- Do you have dependents?
- Do you have investments?
- Are there any tax credits?
- Have you paid in?
These are just a few of the questions. Without knowing all these details, it's impossible for me or anyone else to tell you what you will owe. So I'm not going to try.
What I will try to do with this series is help you understand how taxes work so that you can get a feel for what it will be like.
Introducing the Delivery Driver's Tax Information Guide.
Before we go any further: Get Tax Help!
Here's the thing: This is not tax advice. I am not a tax professional. I don't even play one on tv. This is NOT meant to be tax advice or any advice to help you with your particular situation.
It is meant to help you understand how your gig economy business works with the tax situation. I can't recommend enough that you get someone who can sit down with you and go over your own situation and help you figure out your specifics.
Understanding The Tax Impact of your Self Employment Income with Grubhub, Doordash, Postmates, Uber Eats, Instacart and other contractor based gig delivery companies.
The money you make from these gig companies is only a small part of your taxes. If I were to try to help you understand the total income tax picture, this would become a really, really big guide.
Instead, we'll touch here and there on the bigger picture of your income taxes. However the purpose here is more about understanding the tax impact from your self employment income.
How does the money you make impact how much you will have to pay? What are the tax related things you need to know specific to delivering for Grubhub, Doordash, Postmates, Uber Eats, etc? What is different about taxes when you are self employed? Which things should you know about what to track and what to claim, and which should you avoid?
Let me ask a question: What were your taxes last year?
Most of you will answer with “I got a refund of….” or “I had to pay in…”
That's not the same thing. There's a huge difference between what you had to pay and what you got as a refund, and what your taxes were.
My guess is, you have no clue what the actual tax amount was. You probably never even looked. Or maybe you glanced.
That's okay. I'll be honest: I'm not sure myself.
But that's how it works with taxes. We fill out all the forms or someone does it for us, and then we just pay attention to what we have to do (or what we get) at the end.
We pay even less attention when we work as an employee. The company takes money out of our paycheck and sends it in to the IRS on our behalf.
We really don't even notice it because it never came out of our pocket. In fact it never went INTO our pocket in the first place.
So then April 15 rolls around and we hope enough was taken out that we get a refund. Other than that, we often don't pay that much attention to our taxes.
And that's why we feel so unprepared when we are self employed.
Employees are used to having everything done for them. The boss takes taxes out of our checks for income tax, state and local taxes, Social Security and Medicare. We don't have to think about it, other than wondering if we should change our withholding amounts.
But now that you are a contractor for gig economy companies, it's all on you. No one is taking taxes out for you. They just send you the money and the rest is up to you.
A lot of us are really accidental business owners. We may not have planned to actually BE a business, but here we are, being taxed like one.
That's a stark reality: Worse, we find out there are TWO taxes involved here. Income tax and Self Employment Tax.
The thing is, you ALWAYS had two taxes to pay. As an employee, you had income tax and FICA (Social Security and Medicare). We just never thought about it because we didn't have to file forms like we do for our income tax. It just got taken out of our checks.
But now that you're self employed, you have to take care of your own FICA. Only now it's called Self Employment tax.
And now you have to file tax forms and pay it at the end of the year, instead of having it taken out of your check.
We'll cover more on those things later in the guide.
This guide will be broken down into individual articles. I wanted to do more than just give you an overview that doesn't answer specific questions. Instead, I thought it would be more helpful to go into detail about all the different aspects related to taxes as an independent contractor.
You can follow the menu for the guide, one at a time. Or you can pick and choose individual articles that deal with a specific question.
This is about helping you understand how your earnings as an independent contractor, business owner and self employed individual will impact your taxes overall. It's designed to speak specifically to our situation, as gig economy couriers with companies like Instacart, Grubhub, Doordash, Uber Eats, Instacart and Postmates.
My goal is to help you understand the concepts, NOT provide advice. If you need individual advice, you should seek a tax professional.
The Topics We Will Cover
We'll organize this into four sections: Understanding income, understanding expenses, and understanding how to put that all together on your tax forms.
We've got a lot of articles in this guide. That's so we can look at taxes in bite sized chunks.
We'll look at:
- Understanding your income
- Understanding what expenses you can claim
- Filling out your income taxes
- Preparing for next year's taxes
1. Understanding your income.
Here's the thing: You aren't taxed based on the money you get from Doordash, Uber Eats, Grubhub, Instacart and all the others.
You're taxed on your profit. Your taxes are based on what's left over after expenses.
What that means is that your business expenses are actually included in the income section of your income taxes. I know, it seems a little odd. That's because you need to know the expenses to know the taxable part of your business income.
We'll talk about the money coming in. What earnings DO you report? How do you handle the 1099's you get from gig companies?
And we'll talk about what to do if the income reports are wrong.
2. Understanding your expenses.
Once you understand that your income is actually what's left over after your expenses, then it makes sense to understand your expenses.
Most of this is about your car. That's because for most of us who deliver in the gig economy, car expenses are far and away THE biggest expense. Not understanding those car expenses can cost you thousands in extra taxes.
If you fail to understand your car expenses, you could pay thousands more in taxes than you have to. Most other expenses have nowhere near that kind of impact.
We'll talk about what car expenses you can claim, and try to sort out the difference between claiming the standard mileage deduction and claiming actual expenses. That's why we have several articles about car expenses, each one explaining a different part of the picture.
And then we'll talk about some of the non car expenses that are common for delivery contractors.
3. How Does your Income (profit from your delivery business) affect what you actually have to pay in taxes?
Once you've figured out your revenue, your expenses, and your profits, what do you do with that?
We'll talk about the form you use to report your profit and loss from your business (called a Schedule C). That form helps you know how much of your delivery income and tips are actually taxable.
Then we'll talk about what self employment tax is, and how income taxes work in light of your self employment income.
We'll get into some special deductions a self employed person can take on their taxes even when claiming the standard deduction. These deductions are part of the tax filing process.
4. Preparing for next year's taxes.
Was this year a bit traumatic? Trying to figure out how taxes work, and then worrying about whether you actually have the money you need can be overwhelming.
We'll talk about how to plan for the next year.
In case you didn't catch it before.
I'm not a tax pro. I just saw the need to present this information in a step by step manner to help understand how taxes work.
This is not tax advice.
This is intended to educate. To help you understand taxes, explain the concepts.
Once you understand taxes better, you can figure out where to go. If you need tax advice related to your specific situation, seek out a tax pro who understands gig economy taxes.
Let me know how this helps. Let me know your feedback. Are there questions that remain unanswered? Is this explaining things well or muddying the picture even worse?
There's a lot of misinformation and disinformation out there about taxes. There's bad advice and incorrect data all over. I want to provide something that helps. Hearing from you will help me refine and hone this. Thank you in advance for your feedback!
The articles in the 2021 Tax Guide for Gig Economy Contractors
- Introducing the tax guide for Grubhub, Uber Eats, Doordash, Instacart and other gig economy contractors
- Independent contractor taxes 101: What you are taxed on.
- What your real income is for gig economy contractors
- Understanding business-related expenses for gig economy independent contractors
- Deducting your car expenses
- What non car expenses can gig economy independent contractors claim?
- How to file taxes for Uber Eats, Grubhub, Instacart, Doordash, Lyft etc.
- How to save for next year's taxes
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?