Gig economy companies like Uber, DoorDash, and Lyft hire people as independent contractors. That means it is up to us to track our business expenses in driving food or people from point A to B. Door Dash Drivers are now required to fill out form 1099-NEC instead of 1099-MISC.
Quarterly Payments
Luckily for us, the federal tax rate is only 15.3%. That includes social security and Medicare. As a self-employed person, the IRS expects you to send in your estimated taxes on a quarterly basis through these 1040-ES payment vouchers. To pay the estimated taxes for Q1, you must total your DoorDash income for the quarter and multiply your income by 15.3%. If you made $5000 in Q1, you should send in a Q1 payment voucher of $765 ($5000 x 0.153). If you don’t pay the quarterly estimated taxes, you will be fined a small penalty when you file your taxes by April 15th. Below are the due dates for each 1040-ES Payment Voucher.
- The 1st quarter payment is due April 15th.
- The 2nd quarter payment is due Jun 15th.
- The 3rd quarter payment is due September 15th
- The 4th quarter payment is due January 15th.
Downloading the Dasher Tracker spreadsheet will help you track everything you need to know to complete your taxes. The Dasher Tracker spreadsheet will automatically calculate your quarterly taxes owed, fuel costs, average earnings, and total miles driven.
Tracking Miles and Expenses
There are two ways you can track your expenses for income-tax deductions.
- The hard way – track repair and maintenance receipts, insurance costs, car wash costs, fuel costs, and even restaurant receipts if you eat on the job. Itemize everything and keep all receipts for your accountant to review come tax time. Keeper Tax is an App that helps those who are self employed identify tax deductions. Make sure you document your odometer at the beginning of the year and the end of the year. You will need this information when filing.
- The easy and usually most beneficial way – Track the miles and earnings through the Dasher Tracker spreadsheet. The IRS will allow you to deduct $0.585/mile for 2022. This number can sometimes change during the tax year so it is important to check every few months. Some of these apps, like Uber, will track the miles for you. DoorDash and GrubHub do not track your miles for you, however they track the # of hours spent working. You will need to be diligent in resetting and documenting your trip odometer every time you go out to deliver food.
Using Option 1, this is how you would calculate your taxes. Let’s assume that after you total your costs (gas, insurance, depreciation, meals, maintenance/repairs, registration fees, interest on car loan), you came up with $6000 in expenses. You made $25,000 and drove 20,000 miles (business) and 5,000 miles (personal) for a total 25,000 miles driven.
- 20,000 business miles / 25,000 total miles = 80%, or 0.80
- $6,000 total cost x 0.80 = $4,800 deductible
- $25,000 – $4,800 = $20,200 taxable income.
- $20,200 x 0.153 tax rate = $3,090.60 estimated federal taxes owned for the year.
Using Option 2, let’s use the same earnings of $25,000 and the same 20,000 business miles. This time we will use the IRS $0.575 cost per mile.
- 20,000 miles x $0.575/mile = $11,600 deductible
- $25,000 – $11,600 = $13,400 taxable income.
- $13,400 x 0.153 tax rate = $2,050.20 estimated federal taxes owed for the year.
If you paid the IRS quarterly as you should have, you would have paid them roughly $772 per quarter using Option 1, or $513 per quarter using option 2. In most cases, option 2 (using IRS $0.575/mile) is the best option for maximizing your return or minimizing your taxes owed. Remember you will also need to pay State taxes, unless you live in a 0% income tax rate state like Nevada.
How will you receive your 1099-NEC with DoorDash
If you made more than $600 as a driver in 2022, you will receive your 1099-NEC from DoorDash. If you made less than $600, you are still responsible for paying taxes and filling out a 1099-NEC manually. You can download a 1099-NEC online here. Prior to 2020, this was form 1099-MISC. It was updated to 1099-NEC for 2020 and beyond.
If you would like to receive it electronically, look for an email from Payable in early January. Check your spam folder if you can’t find the email. Follow the instructions from that email and register for an online account. Once you do that, you still have to wait until February 1st, where you will receive an email from Stripe with a secure link to download your 1099-NEC. I’m too lazy so I’m just going to wait for DoorDash to mail it out to me.
Once you get your 1099-NEC, send it to your accountant or try to file taxes on your own with TurboTax. It is very easy and costs $89 to file your deferral tax return for self employed individuals and $40 for state tax returns. Already have an Intuit Mint account? Get an additional 15% off. Sign up for free with Turbo Tax and only pay when you file.
For more information on paying taxes, visit:
IRS: https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center
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