Nobody likes to pay more taxes than they have to. If you make sure to claim all of your business expenses, you can reduce what you owe or even get a refund at tax time. Here are the top tax deductions a courier driver can take.
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This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
1. Mileage and Vehicle Expenses
Self-employed individuals can deduct the cost of their vehicles’ use. This is usually the biggest or one of the biggest tax write offs for delivery drivers for services like GrubHub. It can sometimes even offset all or most of your taxable income even when you’re really making good money.
You can deduct the cost of gas, maintenance, car insurance, and depreciation. Other possible deductions include car loan interest, car inspections, roadside assistance, and car washes and detailing.
The smart move for most courier drivers is to take the standard mileage deduction. You get a fixed rate per mile to cover all of your vehicle expenses and don’t have to worry about tracking your actual costs. You have the option to deduct your actual car expenses instead, but the standard mileage rate almost always gives you a bigger deduction.
Here are the latest mileage rates.
- 2022 (Miles for July through December): 62.5 cents per mile
- 2022 (Miles for January through June): 58.5 cents per mile
- 2021: 56 cents per mile
- 2020: 57.5 cents per mile
The IRS requires you to keep a mileage log showing your business miles.
Remember that you can’t deduct personal expenses, so you need to adjust your car expenses or mileage for your business use only. So if you drove 40,000 miles in a year and 30,000 were for business, you can either claim 30,000 miles or deduct 75% of your actual car expenses.
If you didn’t track your miles, there are a few ways you can find your miles. Most apps keep records of the mileage of your deliveries. You might miss some miles, like driving in between deliveries, but it’s better than nothing. If you use Google Maps or your car insurance company has a mileage tracker, you might be able to find your miles there as well.
Toll fees are deductible as business expenses during your delivery pickups. You can deduct tolls paid while working but not those paid to and from work.
You need proof of toll payments. If you use your toll statements, make sure they show when you paid each toll and you can match it up to your deliveries if the IRS asks.
You can deduct parking charges while picking up orders or parking at a customer. You generally can’t deduct parking fines or traffic violations because the IRS doesn’t want to encourage any kind of illegal activity.
4. Vehicle Accessories
Vehicle accessories, like a dash cam, aren’t part of your car. They’re not covered by the standard mileage deduction.
Vehicle accessories can get tricky because they’re part of your car when you use it for personal reasons. The most you can deduct is the price times the percentage you use your car for business. Even then, the IRS might try to deny a deduction for an accessory saying it’s personal. Be ready to explain why you needed it for business and that you’re not just trying to subsidize something you just wanted to buy.
5. Phone Expenses
If you’re working through a food delivery driver app that requires an internet connection, your phone usage is a legitimate business expense. Like other tax deductions, your deductible expenses only include your business expenses.
If you use your phone for personal reasons, you need to allocate your personal and business use. If you pay for data, you can look at your data logs. If you have an unlimited plan, you can do it by the number of hours you worked divided by the number of hours in a week (168). For example, if you work 40 hours, you can deduct 40/168 = 23.8% of your phone bill.
6. Business Insurance
Many independent contractors are surprised to learn their personal car insurance won’t cover them while they’re working. If you have to buy additional coverage or a separate commercial auto insurance policy, you can deduct those costs in full.
7. Health Insurance
If you aren’t eligible for health insurance through your employer or your spouse’s employer, you can deduct the premiums you pay for health insurance. The health insurance deduction is a separate deduction that doesn’t go on your Schedule C.
If you receive the Premium Tax Credit, you can’t deduct the portion of your health insurance premiums paid by your credit.
8. Health Savings Account (HSA)
If you choose an eligible health insurance plan, you can contribute to an HSA. HSA contributions are tax-deductible if you follow the eligibility rules.
9. Retirement Accounts
Courier driver income is earned income that makes you eligible to contribute to an IRA if you meet the other requirements. Business owners can also open a SEP IRA or Solo 401(k) to get a bigger deduction if they max out their IRA and want to contribute more.
10. Self-Employment Taxes
You can automatically deduct one-half of your self-employment taxes when you file your tax return. The reason is that you’re paying both the employer and employee’s share of payroll taxes. Employees don’t get taxed when their employer pays payroll taxes, so courier drivers shouldn’t have to, either.
11. Lease Payments
It’s becoming more common for courier drivers to lease a car to use for work. Courier driving adds a lot of miles to your car, and the short trips mean extra wear and tear.
If you lease a car strictly for business, you can deduct it in full. If you use it for personal reasons, you have to split your lease payments by business versus personal miles.
If you do deduct lease payments, you have to use the actual expense method not the standard rate. The standard mileage rate includes depreciation, which you can’t claim with a leased or rented car.
Don’t forget to keep records.
The IRS requires you to keep records of every deduction you claim. You must be able to support the amount of the deduction, who you paid, when you paid them, and the business reason for the transaction. A credit card statement usually isn’t enough because it doesn’t have all the needed information.
The best way to keep records is to get self-employed accounting software that lets you scan in your receipts, automatically imports your bank and credit card transactions, and lets you enter more details as needed.
If you keep good records, it should be easy to file your taxes. Most tax filing software can even automatically import your data from popular mileage and accounting apps.
If you want to save money on taxes, make sure you know the deductions for courier drivers. There are strict rules for each deduction, so you may want to talk to a CPA to get tax advice.