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As a Postmates driver, you're an independent contractor and as you know, this has pros and cons. Pros, you're in control of what you do, and when you do it! Cons? There are financial aspects that can be a little harder to navigate, including taxes.
Knowing your tax deductions is key to making as much money as you can. Tax deductions can lower your taxable income. In this guide, we'll help you navigate some of the top tax deductions that Postmates drivers use.
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For Postmates drivers, a major cost is running their vehicle. But, they can deduct these costs from their taxable income. Drivers can choose between two IRS methods to deduction their vehicle expenses:
The standard mileage rate covers all the costs of operating your vehicle, including gas, maintenance, insurance, and depreciation. To use this method, you must keep a detailed log of all miles driven for business purposes. At the end of the year, you multiply your mileage by the IRS rate, and voila! You have your vehicle deduction.
It's important to note that commuting miles, or miles driven from your home to your first delivery location and from your last delivery location back home, are not deductible in most cases.
The actual expense method involves keeping track of all vehicle-related expenses, including gas, maintenance, repairs, insurance, registration fees, and more. You must also calculate your car or truck's depreciation.
To use this method, you must keep detailed records of all your expenses and the number of miles driven for business and personal use. Keep in mind, you can only deduct the % of the expense that was for business.
While this method requires more record-keeping, it can result in a larger deduction if your vehicle expenses are high.
As a Postmates driver, your cell phone is an essential tool for your business. You use it to receive orders, navigate to delivery locations, and communicate with customers. Therefore, a portion of your cell phone expenses can be deducted. The deductible portion is based on the percentage of time your phone is used for business purposes.
For example, if you use your phone for business 50% of the time, you can deduct 50% of your phone bill, as well as 50% of any related expenses, such as the cost of your phone and any necessary accessories.
Any supplies or equipment you purchase specifically for your Postmates business can be deducted. This includes items like insulated bags, car chargers, phone mounts, and even a portion of your car's floor mats and seat covers if they are used primarily for your business.
Remember to keep receipts for all purchases. If the item is used for both personal and business purposes, you can only deduct the portion used for business.
As an independent contractor, you are responsible for paying self-employment taxes, which cover Social Security and Medicare. The good news is that you can deduct half of these taxes. This is a significant deduction that can greatly reduce your taxable income.
This deduction is on your personal tax return, not on your Schedule C. That's where you report your business income and expenses.
If you are self-employed and pay for your own health insurance, you may be able to deduct your premiums. This can be a significant deduction, especially if you have a family health plan.
There are some restrictions, however. For example, you can't take this deduction if you are eligible for health coverage through your spouse's employer. Also, the deduction can't be more than your net self-employment income.
If you use a portion of your home exclusively for your Postmates business, you may be able to deduct home office expenses. This includes a portion of your rent or mortgage, utilities, and home insurance.
The IRS has strict rules for this deduction, so be sure to consult with a tax professional to ensure you qualify.
If you hire a tax professional to prepare your taxes, or if you use tax software, these expenses can be deducted. Additionally, any fees you pay for legal or professional advice related to your business can also be deducted.
Remember to keep detailed records of these expenses, including receipts and invoices.
If you take courses or attend seminars to improve your skills as a Postmates driver, these expenses can be deducted. This includes the cost of the course, books, and related supplies.
However, the education must be related to your current business. You can't deduct education expenses for a new line of work.
If you spend money on advertising or marketing your Postmates business, these expenses can be deducted. This includes the cost of business cards, flyers, online ads, and even a portion of your internet bill if you use it for marketing purposes.
This includes any commissions or fees that paid to Postmates! Remember to keep detailed records of these expenses.
If you have a separate bank account for your Postmates business, any fees associated with that account can be deducted. This includes monthly service fees, ATM fees, and transaction fees.
It's a good idea to have a separate bank account for your business to make record-keeping easier.
If you take out a loan to purchase a vehicle or equipment for your Postmates business, the interest on that loan can be deducted. However, the loan must be used solely for business purposes.
Keep detailed records of the loan and the interest paid.
If you are required to have a business license or permit for your Postmates business, the cost of these can be deducted. This includes the cost of renewing these licenses and permits.
Check with your local government to see what licenses and permits are required for delivery drivers.
If you travel for your Postmates business, your travel expenses can be deducted. This includes airfare, hotel stays, meals, and car rentals. However, the travel must be primarily for business purposes.
Keep detailed records of your travel expenses, including receipts and a log of your business activities during the trip.
The IRS allows a 50% deduction for meals consumed during business travel or meals with clients where business is discussed. However, the meal cannot be lavish or extravagant, and you must keep detailed records of the expense.
Remember, only 50% of the meal cost is deductible, and the meal must be directly related to your business.
In conclusion, there are numerous tax deductions available for Postmates drivers. By understanding these deductions and keeping good records, you can maximize your earnings.
Brad Thibeau is the Head of Growth & Partnerships at Everlance. Brad has worked at Everlance since 2021 with a focus on helping self employed people save time and money on their taxes.
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