If you’re driving for services like Uber, DoorDash, or Instacart, you’re considered an independent contractor, not an employee. This has several key tax implications:
- Self-Employment Taxes: As an independent contractor, you’re responsible for paying self-employment taxes, which cover Social Security and Medicare. This amounts to 15.3% of your net income.
- Income Taxes: You’ll also need to pay federal and state income taxes on your earnings. Since taxes aren’t withheld from your payments, it’s crucial to set aside a portion of your income for quarterly estimated tax payments.
- Deductions: The good news is that you can deduct certain business expenses. Common deductions include:
- Mileage or Vehicle Expenses: You can choose between deducting the standard mileage rate (65.5 cents per mile for 2023) or actual vehicle expenses (like gas, maintenance, and insurance) for the portion of time your car is used for business.
- Phone and Data Expenses: If you use your phone for managing orders and communication, a portion of your phone bill is deductible.
- Tolls and Parking: Any fees paid while performing deliveries or rides are deductible.
- Record Keeping: It’s critical to keep detailed records of all business-related expenses, as the IRS will expect you to prove your deductions if you’re audited.
While being your own boss has its perks, the tax responsibilities can add up quickly. Make sure to track your income, set aside money for taxes, and maximize your deductions to minimize your tax bill.
If you have more specific questions, consulting with a tax professional can help you optimize your tax strategy as a gig economy worker!
Written using ChatGPT