How do you decide whether to claim actual expenses as a delivery driver for gig apps like Grubhub, Doordash, Postmates, Uber Eats, etc., and how do you know which expenses to claim?
You can claim a per mile rate for your car expense. If the actual expenses are higher, you can go that route instead (with limits). So which one is better?
The only way to know is to track both.
What Car Expenses are Allowed for the Actual Method as a Grubhub Doordash Postmates Uber Eats Delivery Driver?
To use the actual expense method, you must determine what it actually costs to operate the car for the portion of the overall use of the car that's business use. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles.”Topic 510 on the IRS website
Here's what it boils down to:
That's gas and whatever you have to put in the car to keep it running
Maintenance and repair.
This would include regularly scheduled maintenance such as oil changes. It includes replacing items that wear out: tires, wiper blades, shocks and struts. Any repairs count, major or minor.
Insurance, registration and licensing costs.
Cost of the car itself.
This one can be confusing. It's not the purchase price of the car, but it's how much value your car lost if you own it (either paid cash or got a loan). This is called depreciation.
If you leased the car, this is the lease payment. You cannot claim depreciation on a lease.
Here is a scenario to help you see how to calculate your costs
Ron drives a 1998 Buick. It gets bad gas mileage and, now that it's older, it's requiring some repairs. His costs include:
- Gas = 1,315 gallons at $2.40 per gallon = $3,156
- Oil changes = 6 oil changes at $40 each = $240
- Repair and maintenance. He had to do tires, brakes, a major tune up, replace the radiator and water pump. $2700
- Insurance = $115 per month = $1,380
- Registration and licensing = $92
- Car cost. Ron owns the car (he'd be crazy to make payments on a 22 year old car). He bought the car a couple years ago and finds that he can claim $338 depreciation cost.
- TOTAL ACTUAL COST = $8,069. (32.3¢ per mile)
- Business portion of that cost = 20,000 business miles = 80% of 25,000 overall miles. 80% x $8,069 = $6,455.22
- The standard mileage rate of 58 cents a minute would allow him to claim $11,600.
- He can choose the standard mileage deduction of $11,600 OR the actual cost of $6,455.22. The standard mileage deduction is higher.
Is the actual cost ever higher than the per mileage cost?
Sometimes, especially if the vehicle is newer or more valuable.
Bob bought a Subaru Outback a year ago. With taxes the purchase price was $34,000. Bob drives part time and works a daytime job. He puts 20,000 miles on each year, 12,000 are for business (60%). He claimed actual costs last year, the first year he had the car.
- Gas – Bob paid $1,845 for gas
- Oil changes and maintenance – Bob paid a bit more at the dealership- $415
- Tires – So far the only thing Bob has replaced were the tires. They still had some good life left, but it was getting to be Winter and Bob was being cautious. $725
- Insurance = $1,640
- Registration and licensing = $675
- Depreciation = $8,704
- Total Actual Cost: $14,004 (70¢ per mile)
- Total business portion of that cost (60%) $8,402
- Standard Mileage Deduction = $6,960
In this situation, Bob chose to claim the actual cost.
The actual cost method allows Bob to claim more than using the Standard Mileage Deduction.
Notice that his total actual cost was $14,004 but Bob could only claim $8,402. Only 60% of Bob's miles were for business, so he's only allowed to take 60% of the car related expenses. But even then, it was more than he could if he took the 58 cents a mile.
I should add, Bob didn't really have a choice. Since he used actual expenses the first year of the car, he's locked in to using that method every year he uses that car.
These factors make it more likely that your actual costs may be higher.
There are two factors that tend to make actual cost higher.
The big one is depreciation. Cars tend to lose value, and that loss of value is an expense. A car that costs $35,000 is going to lose more value than a car that costs $2,000. A more valuable car's loss of value is usually going to be the single largest expense for a car.
The other thing that makes a difference is the impact of fixed costs. I mentioned those above – things like insurance, registration and (from the IRS's point of view) depreciation remain the same if you drive 5 miles or 50,000 miles.
The impact on a per mile basis is smaller when you drive more miles.
For example, say Bob drove 50,000 miles instead of 20k. Bob's costs for gas, maintenance and repairs go up proportionally: From $2,985 to $7,462.50. But insurance, licensing and depreciation remain the same.
So now Bob's overall cost is $18,478.50. The impact of the fixed costs was reduced to the point that Bob's cost per mile went from 70¢ at 20k to 37 cents per mile at 50,000 miles.
Here are some things to think about when claiming actual car expenses as a delivery driver for Doordash, Uber Eats, Postmates, Grubhub and other gig companies
The rules are kind of tricky around it all. Tricky enough that you may find it better to claim the mileage deduction even if actual costs are higher. There's a lot more simplicity involved with the standard deduction.
You cannot claim your car payment.
When you buy an asset, the purchase price is not considered an expense. In accounting, an asset is treated like money. A car worth $20,000 is pretty much like having $20,000 cash.
When you buy a car you are trading money for another asset. Say you have $40,000 and you buy a $20,000 car. Now you have $20,000 and a car worth $20,000. As far as the IRS sees it, you still have $40,000.
It's when the value of the asset changes that something happens.
If you bought a collector car that increased in value, that's like income. If it loses value, it's at that point that the IRS says okay, there's an expense.
What that means for you if you have a car payment is, you cannot claim the car payment. It's the same thing as claiming the purchase price of the car. You are paying for an asset, so that car payment isn't an expense.
You can claim the value the car loses over time. In the big picture, it's like claiming the price of the car, but it's doing so over several years.
But you CAN claim a Lease payment (but when you do, you can't claim depreciation).
Here's the thing: When you lease something, you don't technically own it. A lease is really a long term rental. In that situation, the expense is actually happening when you make the lease payment.
But since you don't own the vehicle, you cannot claim the depreciation. Your car was never an asset, because you didn't own it. You can't claim the loss of value of something you never owned.
If you claim actual miles in the first year you have the car, you may not be able to use the standard mileage deduction for that car in later years.
It's not as easy as switching back and forth from one year to the next.
It all has to do with depreciation. On newer and more valuable cars, it's the loss of value of the car that often makes it better to take the actual cost than the mileage deduction.
There are some ways to claim depreciation that let you take most the value off in the first two years. Once you've done that, switching to a per mile rate is a lot like taking a lot of that depreciation twice.
So, the IRS won't let you do that.
You need to track expenses for each car separately.
Your decision to use standard mileage or actual expense is one you make on a car by car basis. You might have an old beater that doesn't cost much per mile, and also a new car.
You'll want to track your expenses and business miles on both cars. You might be better off claiming the 58¢ per mile on the beater but claiming actual expense on the new car.
You still have to track your miles when claiming actual expenses as a delivery driver for Grubhub, Uber Eats, Doordash, Postmates, etc.
When we are using our personal car and/or filing individual taxes, because we are individuals, the IRS assumes that use of the car is for personal purposes.
It's up to you to document when your car was used for business.
That means if you want to claim there was business use of the car, you have to have proof. That proof, your mileage log, is necessary whether claiming actual expense or the standard mileage rate.
Your mileage log will tell you what percent of your miles is for business. If 75% of your miles were for business, you can claim 75% of actual costs.
You still have to prove the business use which ever method you choose.
Actual cost is called actual cost for a reason.
I think a lot of drivers get this idea they have this incredible windfall. They think it's sweet that we can claim 57.5¢ per mile (2020) when gas doesn't cost that much.
So, they think that if they drive so many miles that they can write off all their income, they're making a lot of tax-free money.
The truth is somewhere in between.
The mileage rate does make it so we can claim more than what it actually costs us. However, if you have a newer or more valuable car, the difference isn't as great as you think.
You might only pay for oil changes and gas this year. That costs a lot less than $0.57 per mile. However, those miles create a lot of wear on a lot of parts. Those are repairs and replacements you will have to pay for.
Your car also loses value. If you paid $35,000 and it's only worth $20,000, that IS an actual cost. It is money out of your pocket, but it sometimes takes a few years for that to materialize.
In fact, if you deliver full time, the miles you put on your car can cost you more than what the IRS calculates. The IRS calculates depreciation on a percentage basis regardless of how many miles you put on it.
Run the Bluebook value of a car. Then run it again with 30,000 more miles on it. Notice how much less the car is worth? The miles make a difference in what you can sell or trade that car for.
The whole point of this is to say using your car DOES cost a lot of money. It's more than just a write off. Be aware that the actual cost of using your car is often closer to the IRS estimate than you might realize.
Is it better to claim actual expenses or the standard mileage deduction as a delivery driver for Postmates, Uber Eats, Grubhub, Postmates or any other gig companies?
The vast majority of the time, I think it's going to be better to claim the standard mileage deduction. With the kind of miles we put on our cars, it's really unusual for actual costs to be higher than the 58 cents per mile.
Here's where I come down on it: I'm going the standard mileage route. It is simpler.
When you do actual value, there are a whole lot of weeds you have to wander into that can get complicated.
Even if you can claim a little more with the actual value method, what does that mean for next year? A lot of times you can't go back to the standard mile rate. The standard mileage rate is probably going to save you more in future years.
Look at the long term value of any decision like this.
Oh, by the way:
If the actual cost of your car IS more than 57.5 cents per mile, why in the world are you using that for delivery?
That's insane. Why would you let actual expenses swallow up your income?
That's not good business.
Track your miles. Track your costs. Know both. And make good decisions based on what you know.
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?