So, you just joined the sharing economy by becoming an independent contractor and now you’re in need of some helpful tax tips. You came to the right place! We’ve done some research to help you understand what an independent contractor is, some tools you can use to track your expenses and how you can maximize your tax benefits as an independent contractor. You should consult an income tax professional or certified public accountant before filing your taxes.
What is an Independent Contractor?
Let’s begin by first defining what an independent contractor is. An independent contractor is a non-employee who operates his/her own business which means that, when working as an independent contractor, taxes will not be withheld from your pay to cover your Medicare and Social Security taxes. Instead, as an independent contractor, you are required to pay self-employment taxes quarterly to cover your Medicare and Social Security expenses – you may not wait until April 17 to file your taxes – you must pay estimated taxes four times a year if your expected tax liability will be at least $1,000. Due dates for estimated tax payments are April 15, June 15, September 15, and January 15. It is important to understand that the IRS will impose heavy interest penalties if proper estimated tax payments are not made.
Legal Stuff – 1099 or W2
As an independent contractor, you may receive a document called Form 1099-MISC or 1099-K to report your income not a W2. Your independent contractor taxes will be filed using Form 1040 along with Schedule C which shows your profit or loss from business and Schedule SE which is filed to pay your self-employment taxes. It is important to keep great records of all business expenses to get the most advantage from tax deductions. You can do this by saving and managing all of your receipts.
Tax Deductions
Rideshare drivers can take advantage of tax deductions in one of two ways: by either using the standard mileage rate or by deducting from actual expenses. If you’re choosing the standard mileage rate then you can deduct 57.5 cents per mile (in 2020) for business miles. If you’re choosing to deduct from your actual expenses then expenses such as gas, vehicle repairs, lease payments, depreciation, the percentage of your cell phone bill used for business, and any equipment used for your business can all be deducted. For example, GoShare delivery professionals can deduct equipment such as moving blankets, ratchet straps, and dollies.
Free or Low-Cost Tools
The standard mileage rate requires less recording keeping and mileage tracking apps such as MileIQ or TripLog make it easy to track your miles. Alternatively, while keeping track of your actual expenses may require more record-keeping, apps such as Expensify can make it quick and easy to take a picture of your receipts and track your purchases. Your accountant will thank you for using these apps to track all of your miles or expenses.
Summary
Understanding independent contractor taxes and knowing what deductions can be made are an important part of your business, and whether you choose the standard mileage rate or actual expenses for your deductions, remember that great recording keeping is essential. GoShare connects independent truck and van owners with business and people who need to move and deliver large items on demand.
GoShare Inc. and our affiliates do not provide tax, accounting or legal advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Sources include but are not limited to the IRS