For those of us using our cars for gig economy delivery, our car expenses are usually the most significant expense item on our tax returns.
How does the car expense thing work for delivery drivers? What does it mean when we can claim either miles or actual expenses?
We'll talk about how it works to claim your car as an expense item on your independent contractor taxes.
- Why claiming your car is such a significant write-off
- Understanding mileage versus actual expenses
- The most important rule for claiming auto expenses
About this article
This article is about how the car expense deduction works in the United States. Other countries have their own tax laws that may or may not be similar. Because there are so many state and local governments, we don't dive into local or state taxes. You should seek out a tax professional who can help you with your locality and the related taxes.
EntreCourier is mainly about the business side of delivery work in the gig economy. Therefore, many examples will be related to food delivery companies like Grubhub, Shipt, Amazon Flex, DeliverThat, and many larger companies.
There are a lot of aspects related to taxes for delivery drivers in the gig economy. It's impossible to cover it all and do it well in one article. For that reason, this is part of a more comprehensive series on gig worker taxes. We'll link to other articles where appropriate, and at the end, we have a list of all articles in the series.
This article does not offer tax advice. The purpose is to educate and inform, helping independent contractors understand how taxes work for them and explaining the related concepts. You should find a tax professional who can guide you if you need specific advice for your tax situation.
Why writing off car expenses is a big deal for delivery drivers
Most of us delivering for delivery services like Instacart, Doordash, Roadie, Waitr, and others put a lot of miles on our cars.
Those miles aren't cheap.
It costs more to drive your personal vehicle than just gas and oil changes. Every mile adds an expense that is paid at a later date. Each mile gets you closer to big-ticket repair/replacement items. It also reduces the value of the car.
Those are expenses that will have to be paid at some time. Either when you replace things like the tires or timing belt or receive less when you sell your car. In that way, it acts like a credit card on wheels.
There's a reason the IRS lets you write off such a significant amount per mile (62.5 cents in the second half of 2022). When you add everything up, it costs a lot.
It becomes even more significant for gig workers in rideshare and delivery. Driving a mile or more for every dollar earned is not uncommon. Even though it feels like you made a thousand dollars in a week, the cost of driving takes a big bite out of those earnings.
The IRS lets you decide whether to calculate the actual cost of driving or claim a flat rate per mile. Either way, claiming vehicle expenses is often a way to significantly reduce your tax burden.
Understanding mileage versus actual expenses.
The IRS offers some flat rate options in different areas to simplify filing taxes. They let you claim a standard tax deduction as opposed to itemizing. Those with home offices can write off $5 per square foot rather than adding up all the housing costs and calculating a percentage of the space.
And you can claim the standard mileage rate of 62.5 cents per mile (2nd half of 2022) instead of adding up all the various expenses.
You get to make a choice.
On the one hand, you can track how many miles you drove for your deliveries and claim the standard mileage rate.
Alternatively, you can add up all the costs of driving, which the IRS includes:
- Gas
- Oil
- Depreciation
- Lease payments,
- Registration fees
- Repairs
- Tires
- Insurance.
We go into more miles about using the actual expense method here.
Once you've determined your total cost of driving, you must calculate what percentage of your miles were for business. Multiply that percentage by the total cost to get your deductible amount.
The thing to remember is that it's one or the other. You can not claim gas or maintenance if you use the standard mileage method. Nor can you claim depreciation and then take miles on top of that.
The mileage allowance is simply the IRS letting you use a flat mileage rate to determine what you can claim. Therefore, claiming actual expenses and the mileage rate essentially takes the same deduction twice.
Is it better to claim miles or use the actual expense method?
There is no one answer to that question. It depends on your circumstances and which one saves the most money year over year.
Suppose you have a newer or more valuable vehicle. In that case, your actual cost of driving may be higher than the standard mileage rate.
Many actual costs are the same whether you drive a few miles or several. Therefore, the actual cost per mile decreases with additional mileage. Most will find that the mileage deduction will be better for most drivers.
The answer to the question can become pretty complicated due to some rules about when you can choose one method or another. For example, you can not claim mileage on a car at any time if you claim actual expenses for the first year. Special depreciation rules often make it better to take the actual expense method the first year but much worse the following years.
Consult your tax professional to determine the best method in your particular situation.
The MOST Important Rule for Claiming Miles:
You MUST track your miles.
Whichever method you choose, the IRS requires that you have evidence of your expenses and that proof must be written.
In order to calculate the business percentage of your driving, you need to know how many miles were for business. That means whether you claim miles or actual costs, you need a log of your business miles.
Either way, the IRS requires a written record that includes the following:
- The date of the business trip
- Number of miles driven
- Where you went
- The business purpose of the trip
The method you use for mileage tracking is up to you. We write more about what miles you can claim, how to track miles, and what you can do if you forgot to track miles.
Additional articles in the Delivery Driver's tax information series:
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
What are your delivery driver taxes based on?
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.
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 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.
