A Complete Guide to Tax Return For Delivery Drivers
Are you making food deliveries and have no idea what the tax implications of the money you have earned? In this article, you will learn that while filing the tax return for delivery drivers which tax forms are relevant.
Also, find out what delivery drivers can claim on taxes.
Which tax forms are relevant for delivery drivers?
While preparing the tax return for delivery drivers first you need to determine whether you are working as an employee or independent contractor.
To ascertain your status as an independent contractor, the IRS gives the following guideline.
An individual is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done and how it will be done.
Once your status is determined then you can start your tax preparation and find out the forms you will require.
Forms for employees
As an employee you should receive your Form W-2, containing relevant information related to your wage and withheld taxes, by January 31steach year. You will use this information to report your income on Form 1040.
Forms for independent contractors
Independent contractors should be familiar with the following forms.
- Form 1040: Every taxpayer is required to file IRS Form 1040. But if they are classified as an independent contractor then they have to file some additional schedule with it.
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Schedule C:
You will use Schedule C to report your business earnings and spendings. In this Schedule C, you will determine your profits by using the following formula.
Profit = Business Income - Business Spending
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Schedule SE: You will require Schedule SE to compute your social security and medicare taxes. - Schedule SE: You require Form 1040-ES to compute and pay your estimated tax if you expect to owe $1000 or more to the tax authority.
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Form 1099-NEC:
Being a delivery driver working as an independent contractor you might receive Form 1099-NEC by delivery services you are associated with.
You will only get this if your yearly payment equals $600 or more. Form 1099-NEC helps to figure out the business income to report on the tax returns of delivery drivers.
Tax brackets
Where you fall in the tax bracket will determine how much you will pay in taxes. The lowest rate is 10% for individuals with an income of $9950 or less. In case you are married and file jointly the income threshold is 19900.
The highest tax rate is 35% which will be applicable once your income is equal to or exceeds $209,425 in case you are single and $418,850 if you are married and file jointly.
What are the allowable tax deductions for delivery drivers?
There are few delivery driver tax deductions allowed for those who are working as employees.
However, as a self-employed or independent contractor, you can deduct expenses that are related to the business if it is common and necessary in carrying out your trade.
How to track your expenses?
The sooner you start tracking your business expenses the easier it will become to figure out which expenses you can claim as a deduction. You can use online accounting software to categorize your expenses.
What can delivery drivers claim on taxes?
Here are some common business expenses you may be able to deduct
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Subscriptions fees and software:
The subscription fees you pay for the apps that facilitate your services as a food delivery driver arè deductible.
Similarly, you might be using photoshop to design posters for social media or business cards to promote your business.
The cost of using this or any other software that is relevant to your business is deductible.
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Commissions and fees: If you drive for a delivery app and they charge a commission, you might be allowed to deduct it along with any fees paid to their platform.Have you ever got a flat tire or run out of gas in the middle of the road and had to call in for roadside assistance to save the day.
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Membership fees for roadside assistance plan:
If you have roadside assistance, also called breakage coverage, you are allowed to deduct a percentage of your annual membership fees.
How many miles you drove for work will determine the extent of expenses you can deduct to arrive at your taxable income.
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Health insurance:
As a self-employed delivery driver you can deduct your monthly health insurance payment and in some cases the original cost of your plan to arrive at your taxable income.
To become eligible for this deduction you must have a business profit. If the net profit is less than your annual health insurance premium then you can only deduct the premium amount to the extent of your net profit.
Additionally, If you are eligible to receive a government subsidy then you cannot deduct the initial cost of your plan. However, you can still deduct your monthly premium.
It is noteworthy that if you receive health coverage either from your spouse or employer you will not be able to claim this expense as a deduction.
- Parking and tolls: Usually, the toll fees you pay while on your way to deliver food is deductible, if you meet the following two condition: It is not being reimbursed to you and they are not related to the journey you take to and from work. All the parking fees you pay while working are deductible unless they have resulted from speeding tickets or any other violation of law and regulation.
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Insulated food delivery bags and other supplies:
Being a delivery driver you might have to get some essentials to get your job done.
For e.g. you might need insulated food delivery bags to maintain the appropriate temperature of the foodstuff while you are on your way to deliver food at your customers’ doorstep.
Generally, they are considered deductible business expenses.
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Communication expense:
Communication devices such as mobile phones are an essential part of the delivery driver business.
If you have a mobile phone which is solely dedicated to business purposes then you are allowed to deduct 100% of the cost of your phone. You can also claim your monthly phone bills as a deduction.
Additionally, if you have a data plan the entire cost of having it will be deductible. However, if you are utilizing it for personal purposes then you are required to split the cost and can only deduct the business portion of it.
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Vehicle expenses: You might be using your personal vehicle for food deliveries. In this case, your allowable travel expense related to business will be determined in 2 ways:
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Standard mileage rate:
If you are using this method to compute your automobile expenses then you need to keep track of the business miles you drive.
Once you have the business miles you can then multiply it by the standard mileage rate prescribed by the IRS. For 2021 the standard mileage rate is 56 cents.
Business miles x standard mileage rate
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Actual expenses:
If you choose to use this method then you are required to know your percentage of business-related use and the total operating costs of your vehicles.
For e.g. if you have used your vehicle 30% of the time for business purposes and your total operating cost is $5000, then your allowable deduction will be $1,500 ($5,000 * 30%).
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Standard mileage rate:
To sum up
Seek advice from a tax professional to ensure you use the correct forms and claim the maximum deductions while filing tax returns for delivery drivers, a key component in tax planning for small businesses.
Paying taxes on time is crucial to avoid penalties, and consulting a professional about your tax requirements can simplify the process when tax time arrives. This proactive approach will ease your filing process significantly.
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