DoorDash Tax Guide: What deductions can drivers take?
A side hustle like DoorDash can be a terrific way to make some extra cash. If self-employment is for you, you can also plunge headfirst into the gig economy and become a full-time delivery driver. Either way, it’s important to understand that although working as an independent contractor for DoorDash and other companies offers some tremendous benefits, it also comes with tax consequences. It’s important to understand these tax issues so you don’t accidentally run afoul of the IRS.
Do I Have to Pay Taxes for DoorDash?
The short answer is yes. When you work as an employee, your job withholds income taxes from your paycheck and submits them to the appropriate taxing authorities for you. Independent contractors still owe these taxes, but are considered self-employed. As such, DoorDash doesn’t withhold the taxes for you. Instead, you must pay them yourself at tax time or, if you make enough, by making estimated tax payments throughout the year. No taxes are taken out of your DoorDash paycheck.
There are several taxes that you’ll be responsible for as a DoorDasher. The first is your standard federal income tax. You’ll also need to pay FICA tax, which includes Social Security and Medicare taxes. Typically, you and your employer each pay half of this FICA tax. When you’re self-employed, however, you must pay both halves. This is what people refer to when they talk about self employment tax.
It’s important to remember that you may also have to pay state and local income taxes depending on where you live. The rules for doing so will vary from one location to another.
Income Versus Profit
When planning for your DoorDash taxes, remember that the IRS considers you to be running a delivery driver business. As you are likely aware, in the accounting world, income is any money that you take in. Profit, however, is what’s left of that income after paying your expenses. That means you will pay tax on your profits – not your income.
You can use certain tax deductions and business expenses to lower your total tax liability. Half of your self employment tax, for example, is tax deductible. There are several other deductions you can take to help offset and lower your DoorDsh taxes. We’ll get into the specifics of these deductions next.
Discover Tax Write-Offs You’ve Been Missing
There are many available deductions for the self employed, and you can take as many as apply to you. As a DoorDash driver, however, some are especially helpful and that you absolutely don’t want to miss.
The Mileage Deduction
When driving for DoorDash you must, of course, use your own car. The counts as company use of your personal vehicle, and you can deduct some of your car expenses as a result. Notice the very important word “some” in that sentence. You still drive your car for personal reasons as well as for work, so you can only deduct the expenses related to the job. To do so, you’ll need to keep track of how many miles you drive for work. Work miles are any that you drove specifically for work – whether you’re picking up food, making deliveries or going to the store to pick up a new insulated bag for keeping food hot.
There a two ways to tackle this deduction. The easiest is to simply multiply the number of miles you drove by the current IRS standard mileage rate. This number is easy to calculate, but it may not cover your actual expenses. If, for example, your car was in the shop more than normal during the year, it may benefit you to calculate your actual car expenses rather than taking the standard mileage rate.
To do so, you’ll need to add up everything you paid for your car during the year. Car insurance, gas, repair bills, inspection fees, tolls and parking fees are all deductible expenses, but there’s a catch. You can only deduct the portion of these expenses that applied to your work. If you drive your car for personal tasks 80 percent of the time and for work 20 percent of the time, you can only deduct 20% of your car expenses.
Because work comes to you through the DoorDash app on your cell phone, you must have a phone in order to do the work. As a result, you can deduct some of your cell phone expenses. You can deduct the cost of a new phone as well as the cost of your cell service. Phone accessories may also be deductible. For instance, if you purchase a phone mount so you can get hands-free driving directions while making deliveries, you can deduct the cost of that, too.
Remember, however, that the phone deduction works the same way as the mileage does. You can only deduct a portion of your phone expenses. Money spent on the phone specifically for work is deductible, but your personal use of the phone is not.
This is a big one. If you drive full-time for DoorDash, you’ll need to provide your own health insurance. Insurance premiums are hefty, and this deduction can save you a lot of money if you qualify. There are two criteria you must meet in order to take the deduction.
The first is that the insurance plan you’re deducting is in your name or the name of your business. The second condition is that you were not eligible for coverage under someone else’s insurance plan. Let’s say, for example, that your spouse has insurance through their job and they could add you to the policy. If so, you can’t take the health insurance deduction: even if you did not participate in that insurance plan.
DoorDash requires all of their drivers to carry an insulated food bag. Because this is a necessity for your job, you can deduct the cost of buying the bag at tax time. You may also find that you need to purchase other deductible work equipment as well, including drink holders or spill-proof covers for your car seats.
There are two common deductions that DoorDash drivers tend to take even though they shouldn’t. One is the home office deduction. This deduction is meant for business owners that work from or store inventory in a specific area of their home. This area must be used for work and nothing else. DoorDashes can work from anywhere and are ineligible for this particular perk.
Another common mistake is taking the uniform deduction. Although it’s recommended that you wear a DoorDash shirt or other identifiers when making deliveries, it is not required. Because wearing DoorDash branded gear isn’t mandatory, you can’t take the uniform deduction; even if you cover yourself from head to toe with DoorDash regalia when you’re working.
How Do I File a 1099 Tax Return?
Generally, a 1099 tax return is the same as a regular filing except that you need two additional forms. One is the Schedule C and the other the Schedule SE. The Schedule C is where you’ll report all of the important information about your business. You’ll begin by placing your 1099 income information at the top of the form. As you work your way down the form, you’ll fill in your business expenses and deductions. At the bottom, you’ll use the information on the form to calculate your DoorDash profits and then copy that number onto your Form 1040.
The Schedule SE will walk you through calculating your self-employment tax. First, you’ll calculate your total self-employment tax and then record it on your Form 1040. Next, the form will help you determine your self-employment tax deduction, which you will also transfer onto your Form 1040. Many online tax preparation programs can walk you through both of these schedules, but some free packages won’t. Make sure to choose software that can support the needs of the self-employed.
Tax Form 1099-NEC vs 1099-K
At the end of the year, DoorDash will add up all of the money it paid you and send you a Form 1099-NEC. This form is essentially a W-2 for independent contractors. If, however, you made more than $20,000 working for DoorDash and have more than 200 transactions with them, you will receive a Form 1099-K instead. The exception to this rule is Dashers who live in Vermont or Massachusetts. If you live there, you will receive a Form 1099-K if you made more than $600.
These two forms are essentially the same. The difference is that the 1099-K lists your total income for the year and then breaks that income down monthly as well.
Need Help With Filing Doordash taxes?
After a few tax seasons, you’ll get the hang of filing your taxes as a DoorDasher. Until you do, know that Picnic Tax stands ready to help. With Picnic Tax, you always have access to a tax professional who can help you, whether you have a question on a tax form or need help making sure you’re taking a deduction properly. If you have questions, reach out to us today for answers so you can move forward confidently with your return.