As a driver who drives for a service like Grubhub, claiming tax deductions can make your tax return look a little less like roadkill and a little more like the King of the Road.
Grubhub drivers are considered to be self-employed, so they don’t have taxes withheld from their paychecks like traditional employees. Because of this, self-employed professionals are allowed to claim deductions for work-related expenses, which helps lower their tax burden.
When you’re ready to file, you’ll list the majority of your deductions in Part II of your Schedule C (Form 1040). If you have less than $5,000 in claims, you may be able to use Schedule C-EZ. Whichever you choose, both are due April 15 along with your annual tax return.
(NOTE: If April 15 falls on a weekend or holiday, it is observed the following Monday or Tuesday.)
Car-related expenses (Line 9)
Because you receive income from driving, your most substantial tax deduction source will likely be your car. Whether you’re using your personal car or one purchased exclusively for driving, you have to choose between two methods of deduction: the actual expenses method or the standard mileage method.
Here’s the difference between each choice.
Method 1: the standard mileage rate
The standard mileage method lumps common expenses together for which you deduct a single rate per mile. This is by far the simplest method. You track your business mileage and then multiply the total number by the rate set by the IRS for that tax year ($0.545 per mile for 2018, $0.58 per mile in 2019). This includes:
- Lease payments
- Maintenance and repairs (e.g. oil, tires, etc.)
- Vehicle registration
Since this rate includes all of these expenses, you cannot separately deduct them. Also, it should go without saying, but you can only deduct the business usage of your car. Here’s an example:
You own a car and drove a total of 18,000 miles (whew!) for the year. 11,000 of those miles were driven for work. Because you can only deduct the business use of your car, you can only deduct the rate based on those 11,000 miles. That would be 11,000 x $0.545, which equals $5,995.00.
An important note: If you’ve used the actual costs method for this car in the previous year (see below), you are not allowed to switch back to the standard mileage method. There are also a few other cases where you cannot use it: For example, if you aren’t the owner or lessee of the car, or if you use five or more cars at the same time.
Method 2: the actual costs method
In this method, you keep track of every individual cost you have related to your car. This includes gasoline, insurance, maintenance, depreciation, lease payments and more. This means you need to keep good records of all related receipts. Financial software like QuickBooks Self-Employed can also help keep track of these expenses and automatically classify them as deductions.
One thing you’ll also have to track is depreciation. Depreciation is when you apply portions of a single expense over a prolonged period of time. For example, say you buy a $10,000 car. Your car doesn’t provide all its value in the first year, because you’ll own it for longer than that. It provides you value for the entire time you have it, which means you’ll have to manually account for its depreciation.
The easiest way to calculate your depreciation for the year is using what is known as the “straight-line method.” This is the total cost divided by the number of years. So if you depreciate a $10,000 car over seven years (the maximum number of years the IRS has set for car depreciation), that’s $1,428 per year of depreciation expense. There are also other methods, like the 200% declining balance or 150% declining balance, but the IRS generally prefers the straight-line method.
Then there are requirements for weight and vehicle type. For 2017, assuming your car is used 100% of the time for business, the maximum allowable depreciation deduction for a new car is $3,160, with up to an additional $11,160 in “bonus depreciation.” For a used car, it’s only $3,160. Further restrictions apply to light trucks, vans and SUVs.
And one more note: Once you use the actual costs method, you will not be allowed to use the standard mileage method the following tax year.
Sound confusing? It can be. That’s why most people decide to use the standard mileage method.
Parking and tolls (part of Line 9)
In addition to either of the two methods above, you can expense parking fees and tolls that relate to business driving. For example, if you’re picking up a client and have to pay for parking while you wait for them to come down, you can deduct that parking expense. But if you’re taking a break for lunch, you cannot expense the parking, since it is not business-related.
Tax-deductible costs of doing business
Cell phone (Part V, part of Line 48)
If you pay for a phone and data plan, you can write off the business portion of this cost. The IRS allows you to use a bit of judgment when calculating this number.
Let’s say you pay $50 per month for your personal cell phone use. After joining Grubhub, you decide to upgrade to a $100 per month data plan, since you’ll be using the app and your data plan often. You have a good case for writing off the extra $50 per month, because you wouldn’t have purchased the larger data plan if you hadn’t started this new business.
Car interest payments (Line 16b)
You can write off interest on your car loan payments. Like all expenses, however, you can only write off the business portion (e.g. 60% of the interest if you use the car 60% of the time for business and 40% for personal use).
Health insurance tax deduction (Line 29 of IRS Form 1040)
You can deduct the costs of your personal health insurance premiums as a self-employed person as long as you meet certain criteria:
Your business is claiming a profit. If your business claims a loss for the tax year, you can’t claim this deduction.
You were not eligible to enroll in an employer’s health plan. This also includes your spouse’s plan. If you were eligible to enroll in one and chose not to, you cannot claim this deduction.
You can only claim premiums paid for the months when you were not eligible for an employer’s health plan.
Self-Employed Contributions Act (SECA) tax deduction (Line 27 on IRS Form 1040)
If you’re a traditional employee, your FICA tax burden is split between you and your employer. If you’re self-employed, you’re responsible for paying your own share of those Social Security and Medicare contributions, collectively known as SECA.
Self-employed professionals can claim a SECA deduction on Line 27 of Form 1040. You will compute this amount as part of Schedule SE.
Lots of drivers may not see themselves as self-employed, which means they get taken for a ride at tax time by not claiming legitimate deductions. Make sure you’re in the driver’s seat by tracking all of your expenses by keeping solid documentation throughout the year. QuickBooks Self-Employed makes it a breeze, allowing you to track mileage and other expenses right in the palm of your hand.
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