Gig Work Tax Deductions You Don’t Want To Miss
If you’re a gig worker, you probably enjoy all the freedom and flexibility that comes with this work. But it also means you have to cover all of your own expenses, which can cut into your profit. You also need to keep track of all of your expenses and pay all of your taxes. Because of this, it is essential to claim as many expenses as possible on your tax return. However, many gig workers are unsure of what expenses they can claim. So, to help with this, we will discuss some of the gig work tax deductions you can claim and how to claim them.
Are Gig Work Expenses Deductible?
As a gig worker, you can deduct legitimate business expenses from your taxes. However, it is essential to make sure you only deduct business expenses, not personal expenses. This means that if you have expenses that are both personal and business, you need to determine what portion of the expense is business and only deduct the business portion. For example, if you use your car to deliver food and for personal purposes, you need to determine what percentage of use is for food delivery and only deduct that portion. You will deduct most expenses on Form 1040, Section C. However, any home office expenses will be deducted on Form 8829.
Common Tax Deductions for Gig Workers
Here are some common tax write-offs for gig work, including gig driver tax deductions.
- Vehicle Expenses: This is a common deduction in many businesses but is particularly important for gig drivers, whether they drive passengers or deliver food. If you’re a gig driver, this is your biggest expense, and you need to take full advantage of it. The IRS gives you two choices when deducting this expense. You can either use the IRS standard mileage rate, which for 2023 is 65.5 cents/per mile or your actual expenses. If you choose actual expenses, you will need to keep receipts for all of your vehicle expenses, including gas, repairs, oil, lease payments, tires, parking, tolls, insurance, licenses, registration, and more. There is more about these methods on this IRS Fact Sheet.
- Other Equipment: You can also deduct other equipment used for your business, such as food and drink carriers, seat covers, and floor mats, or entertainment services, such as Spotify, among others. Additionally, you can deduct your cell phone and phone bill if it is used for business. If the phone is for business and personal use, you will need to determine the percentage it is used for business purposes and only deduct that portion.
- Supplies: For gig workers that work out of a home office, this could be pens, pencils, printer paper, ink, and any other normal office supplies. Whereas for drivers, it could be subscriptions to entertainment services, such as satellite radio, as well as snacks, or water, among others. Although, it is important to make sure the expenses are ordinary and necessary.
How To Keep Track Of Deductible Expenses for Gig Workers
It is essential for all gig workers to keep track of their expenses. This will allow you to claim any deductible expenses when filing your taxes. So, you may be wondering how to keep track of expenses gig work. Here are a few ways.
- Open a Business Bank Account. As a gig worker, you are not required to have a separate bank account for your business money. However, a business bank account is useful for separating business and personal expenses, and this can be very useful if you are audited.
- Use a Mileage App. Many gig workers today are independent contractors for ride-hailing companies or food delivery companies. If you are an Uber driver or deliver for DoorDash or do any similar work, using a mileage app is a good idea. In this type of work, vehicle expenses are going to be your largest expense, and a mileage app, such as Driversnote, can help you accurately track your mileage. This can be useful if you decide to use the IRS standard mileage rate for your tax deduction, which is often easier than tracking all of your vehicle expenses separately.
- Keep Careful Records. You need to keep a record of all of your income and expenses. For most people, the best way to do this is to use accounting software. There are some very user-friendly options available.
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Mileage reimbursement in the US — rates and rules for employees, self-employed and employers in the US.
The standard mileage rate for business will be 67 cents per mile, effective Jan. 1st, 2024 - up 1.5 cents from the 2023 rate of 65.5 cents.
Find out if you fall into one of the groups of employed individuals who can claim mileage on taxes in the US in 2024.