When preparing your end of the year taxes, many delivery workers make some basic mistakes. This article will go over these mistakes and help correct them. This article covers all drivers that work for any door to door delivery company including Postmates, Amazon Flex, Instacart, DoorDash, GrubHub and Caviar.
Most drivers work part-time in delivery and have a full-time job that lets them use the W2 withholding tax option. They make a mistake thinking that the withholding tax option pours over to their part-time job, that is a big mistake. All drivers earning income from commercial sources as independent contractors must file their 1099 forms and are required by law to pay estimated taxes.
Saving up for taxes
It is best to save up a part of your daily income for taxes. Don’t be surprised when at the end of the year you get a hefty tax amount to pay, and you don’t have enough to pay it. Save up around 20% of all your income for tax purposes as well as general savings. This will ensure that at the end of the year you have the exact amount of money available for paying all your tax differentials, and if you have any spare, you can use it to buy a gift for your loved ones. A simple formula I always use, for every $100 I save $20.
Professional Tax Preparation
Unless you are a certified accountant, don't be a chump and fall for the "I can do it myself and save money" trap, and I know many people that do this. I prefer to pay for an online service or ask my cousin who is a tax consultant to help me out. The online services include TurboTax Small Business. This is a great option since it guides to include every expense and mile driven.
The 1099 form counts reimbursements as income, so make sure you include them as a business expense and deduct them accordingly.
When you fill in all your tax forms, even when using software packages, make sure you declare the delivery section as "self-employed" and post that in the schedule C section. Since the income from delivery work is taxable, make sure you file all expenses separately, and consult regarding all expenses including cell phone charges and storage of bike or car at home, yes, these are chargeable too and a percentage of your home expenses can be used in business, since your home is also your office.
Records and Filing
Make sure you have copies of everything, hard and digital. This means, every digital invoice should be printed and every hard copy invoice should be scanned, maintaining a double filing system of hard and digital. Also, make sure you keep a printed mileage log every week. Itemize every expense and create an excel sheet to make it easier for you to remember all the details.
Municipal Business Tax
Some cities require you file a business license and that means paying fees and taxes to the city. It also means filling in forms and getting a business license.
At the end of the year, if you think you have more than $4,000 to pay in taxes, then be prepared to pay every quarter a tax payment. If you don't pay the estimated taxes, you will pay a hefty fine of anywhere up to 6 to 8 percent. Also, remember your municipal estimated taxes too, which you get from the City and not the IRS.
I added this again, to state how important it is to get proper professional help with taxes. The more you work for delivery service, the more income you generate as well as more expenses you spend. You must invest a small amount in getting professional help, and that way save on unnecessary taxes. The few hundred dollars (around $300) you pay for help will save you thousands of dollars at the end of the year, and during it for estimated taxes.