As an independent contractor in the gig economy, your taxable income is your profit, not the money you receive from gig companies.
It's easy to confuse 1099 taxes with employee taxes. That confusion can lead to other mistakes, which can be very costly at tax time.
We'll explore the difference between gross income (the money paid to you as an independent contractor) and your profit (what's left over after expenses). We'll also look at why it matters.
- How mistaking gross income for profit can be costly
- The difference between gross income and profits
- How profit impacts your taxes
About this article
This is part of our series of articles on taxes for 1099 delivery contractors. Rather than giving you one article that barely touches on the details, we created several posts that go in-depth about different tax topics. At the end of the page, we'll provide a complete list of all articles in this series.
This is geared towards independent contractors in the on-demand delivery sector. However, these principles are not limited to delivery work or necessarily to the gig economy. Much of this may also apply to any type of freelance or sole proprietor business you may operate.
Any tax discussion here is related to United States independent contractor taxes. Many state and local governments and other nations may have their own tax regulations that may differ.
Finally, do not take the information found on this site as tax advice. The information provided here is for informational purposes only. You should seek a tax professional for specific guidance related to your personal tax situation.
How mistaking profit for gross income can be costly.
You first need to understand that you are running a business. When you signed your independent contractor agreement, you agreed you provide services as a business, not as an employee.
As a result, you're taxed as a business. This has some significant benefits for you. Having the wrong mindset here could be costly in the following ways:
- You can overpay your taxes
- You can be unprepared for taxes and expenses.
A common mistake for independent contractors is thinking they can't claim tax deductions unless they itemize them. That can lead to not tracking expenses or miles, assuming it doesn't matter.
Costs related to your business are business expenses, not tax deductions. That means they're written off in a different place on your tax return. Schedule C is where you record your independent contractor income and expenses. As a result, you can claim business expenses regardless of whether you take the standard tax deduction.
The other problem is that if you think of your pay like a paycheck, you could spend it all and be unprepared for future expenses or taxes. When you run a business, you are on your own regarding withholding taxes. Your best practice is to set aside tax money and save for future costs (such as your car wearing out).
Understanding gross profit and taxes
You receive customer tips and delivery fees for services for companies like Uber Eats, Doordash, and Instacart. That's not your pay.
The money you receive for your contractor work belongs to your business. It's known as gross income.
The problem is that operating a business often costs a lot of money. If you had to pay personal income tax on all the money coming in, you could pay more in taxes than what you have left after those costs.
Suppose you owned a widget store and sold $100,000 worth of widgets, but your cost for those widgets was $85,000. If you paid taxes on the gross income (the $100,000), you might pay $25,000 or more, meaning you paid more in taxes than what you had left over after expenses.
It's fairer to tax on profits. For that reason, the IRS lets a business write off the cost of materials and the cost of doing business.
As an independent contractor, you're known as a sole proprietor unless you've formally created another type of business entity. The IRS looks at your business as a pass-through entity, meaning that profits from your business pass through to your personal income tax.
In other words, your profits are added to your tax return as personal income. Unless you've created a corporation, you do not file a separate tax return for your business. Instead, it's all part of your personal taxes.
How profit impacts your taxable income
Many people think the 1099 forms you get from gig economy companies at the end of the year are your equivalent of a W2. This is incorrect, thanks to the difference between gross income for your business and personal income.
An employee's W2 income is added immediately to their tax return as income. A 1099-NEC reports income for your business, not for you personally. As a result, you take an extra step when filing your tax return.
Now, as a business owner, you add up your gross income and enter that into form Schedule C. Next, you add up your business costs. Those costs are listed in the expense section of Schedule C. Here you can also include either your business mileage or car expenses.
Subtract expenses from gross income to get your profit. This is the number that is added to other income on your 1040 tax return.
You do one more thing with that profit number that is not part of an employee tax process. Profit is also entered on form SE, where you calculate Self-Employment tax (your version of Social Security and Medicare taxes).
This whole process happens in the income portion of filing your tax return. Your ability to list expenses here means it doesn't matter whether you itemize or take the standard deduction on your tax return. You can claim your business expenses and miles either way.
Profit (or Loss) is what matters.
When it comes to taxes, it's the big picture that counts. Money coming in belongs to your business. The money that's left over belongs to you.
The best takeaway for you in this is to keep good records. Bookkeeping can be intimidating, but we put together a guide to help make it easier.
The most critical thing you can do is track your business miles. If you use your personal vehicle for deliveries, this can be a huge write-off. Every business mile reduces your taxable income by 67 cents (2024). With many drivers putting hundreds or thousands of miles on their cars for delivery work, that's pretty significant.
We write more on what miles you can track for independent contractor work and separately about how to track those miles. You can keep a written log if that's easier for you or use a GPS tracking app like Hurdlr.
You may have never intended to open up a business when you started your delivery gig. Maybe that makes you an accidental business owner. The main thing here is the importance of thinking like a business owner, treating this like a business, and understanding your actual income.
The tax guide series for Uber Eats, Grubhub, Instacart, Doordash independent contractors
Independent Contractor Taxes
Taxes are particularly challenging for independent contractors for gig economy apps like Doordash, Instacart, Uber Eats, Grubhub and others. We have tax related articles listed under the following sub categories.
All About Taxes for Grubhub Doordash Postmates Uber Eats Instacart and other Independent Delivery Contractor gigs.
This tax overview for delivery contractors examines several important concepts about how taxes work in the gig economy.
Income and 1099s for delivery contractors
What is your true income as you deliver for Doordash, Uber Eats, Instacart, Grubhub and others? How do 1099 forms work?
Mileage and Car Expense for Delivery contractors
For those of us who use our cars for delivery, vehicle expenses are typically the largest deductible expense by far.
Business Expenses for Delivery Contractors
Understand the other non-car related expenses that are typical for gig economy delivery contractors.
Tax Filing and Forms
How does the Schedule C work? What is it like to file taxes as a self employed individual contractor for gig econony apps like Doordash, Uber Eats, Postmates, Instacart, Grubhub and others?
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
How does itemizing or taking the standard deduction affect writing off delivery driver business expenses?
We examine the difference between business expenses and tax deductions, and why you can claim your expenses even when taking the standard deduction.
Tax Guide: Understanding Your Income
The following three articles help you understand what your real income is as an independent contractor.
Understanding business income as a 1099 gig worker
What income do you have to report as a contractor for Grubhub, Doordash, Postmates, Uber Eats and other delivery gigs? How and where do you report?
What are 1099 forms and what do we do with them?
Episode 57 of the Deliver on Your Business Podcast. Once you receive your 1099 forms from Doordash, Uber Eats, Grubhub, Postmates and others, what do you do with them?
What If My 1099 is Wrong?
What if the amount reported on your 1099 is incorrect? This is not an uncommon problem. Do NOT just let it ride, incorrect information could cost you a lot in extra taxes
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.
How do business expenses work for Delivery Drivers in the gig economy?
Introducing and explaining the business expenses as they are claimed on your taxes as a contractor for Grubhub, Doordash, Postmates, Uber Eats.
How to write off car expenses for gig workers
For those of us who do use our cars for gig economy delivery, the car expense is the largest expense item. You can choose between the standard mileage allowance and actual expenses.
How to Track Your Miles As a Delivery Contractor
Every mile that you track as a contractor delivering for Doordash, Uber Eats, Grubhub, Instacart, Lyft etc, is saves about 14 cents on your taxes. When you drive thousands of miles, that adds up.
What Miles can you and can you not claim for delivery and rideshare?
What miles can I claim when delivering for Grubhub, Doordash, Postmates, Uber Eats and other delivery gigs? Understand what miles you can and cannot claim.
What if I Forgot to track my miles?
What do I do if I didn't track my miles as a gig economy driver? We look at different places you can find evidence to use in building a mileage log.
How the actual car expense method works for gig workers
It is important to understand your taxable income is your profit, NOT your pay from Grubhub Doordash Postmates Uber Eats etc. Schedule C figures that.
Three Car Expenses Gig Economy Drivers May Not Know You Could Claim Even When Claiming the Mileage Deduction
You probably didn't realize that even if you claim the standard mileage deduction, there are some car related expenses you can still claim.
Besides My Car, What Other Business Expenses can I claim for Grubhub Doordash Postmates Uber Eats etc?
Besides your car, what expenses can you claim as a contractor for Grubhub, Postmates, Uber Eats, Doordash etc? We look at some different possible expenses.
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?
Filling Out Your Schedule C as a Grubhub Doordash Postmates Uber Eats Contractor
How do you fill out the Schedule C when you contract with gig companies like Uber Eats, Postmates, Grubhub, Doordash etc.? We talk about different parts of this form.
Understanding Self Employment Taxes for Delivery Drivers for Grubhub, Doordash, Postmates, Uber Eats etc.
Understand how self employment tax works as a contractor for Grubhub, Uber Eats, Doordash, Postmates or any other gigs. Know what it is,how much & be ready!
Understanding the Income Tax Process For Grubhub, Postmates, Doordash, Uber Eats Contractors
How does our self employed income from Grubhub Doordash Postmates Uber Eats etc impact our income tax? We walk through the process on the 1040 form.
Here are Four Tax Deductions for Self Employed Contractors That Don't Go on Schedule C.
Most of our deductions as self employed contractors go on Schedule C. Four deductions benefitting Grubhub Doordash Postmates Uber Eats Contractors.
Do 1099 Delivery Drivers Need to Pay Quarterly Taxes?
We look at how quarterly tax payments work for gig economy workers (Uber Eats, Doordash, Grubhub, Instacart, Uber, Lyft, etc.)
How Much Should I Save for Taxes? | Grubhub Doordash Uber Eats
How much should I save for taxes when delivering for gigs like Grubhub, Doordash, Postmates, Uber Eats and others? These ideas help you prepare for taxes.