Making a little extra cash always is an enticing thing, and many people have put their car to work for them. Food delivery companies such as DoorDash, UberEats, Postmates, and Grubhub have boomed in the past year, while Uber and Lyft remain popular options for folks looking to make some money on the side.
If you're driving for one of these companies, you may enjoy the flexibility it offers your schedule and extra change it puts in your pocket, but you also need to know how doing so impacts your personal taxes.
You won’t receive a Form W-2. Rather you're likely to get a Form 1099 showing gross earnings which will be reported on your personal income tax return.
Since there will be no withholdings from your pay, you’ll need to make estimated tax payments associated with this income.
Various deductions are allowed to offset your income, such as business mileage on your car, tolls, parking fees, and business use of your cell phone or navigation device.
Tracking your expenses is key to maximizing deductions and potentially lowering your tax payments. That’s why good record keeping is so important -- it will serve as proof of your deductions. Without records, the IRS could disallow your deductions in the current year – and future years through a possible audit.
Here are some helpful tips for good record keeping:
Keep a separate bank account for your business income and expenses as this simplifies your ability to track any business expenses and deductions by keeping them apart from your personal income.
Save your receipts, either digital or paper copies, and be sure to jot down some notes about those expenses on the receipt so you can document their business purpose.
Maintain mileage logs to confirm your business miles, but remember you must chronicle the date of your trip, your destination, the purpose of it and what your mileage was at the beginning and end of the trip.
Consider using tracking apps or software to stay organized.
Check the websites of Uber, Lyft, DoorDash and other driver services for the appropriate tax information.
If you’re a driver or are considering working for a food delivery service, be sure you’ve got a handle on how this kind of work could affect your taxes. At PADGETT BUSINESS SERVICES®, our network of CPAs, enrolled agents and tax professionals can help you better understand what you owe. Reach out today and set up a consultation.
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