If you have not been following the news, you might not know that ridesharing apps like Uber & Lyft have recently won a major victory in court. The courts upheld Proposition 22, a voter-approved California law stating that rideshare drivers like those working for these two companies and DoorDash and other food delivery services are not entitled to paid sick leave, unemployment benefits and other benefits usually reserved for full-time employees. This was a blow to those who wanted to unionize and enforce stricter labor laws surrounding contract employees who appealed to strike the law down in 2021. Some gig workers, however, rejoiced for a very different reason – the tax benefits of being labeled an independent contractor.

Independent contractors regularly bemoan their unique tax set-up for its complicated nature – no easy W2 one-and-dones. But, there are some great benefits to being seen as self-employed in the eyes of the IRS. One of these is deducting your expenses. For a rideshare or grocery delivery driver, this could be deducting the wear and tear on your car that you accumulate over time. Whether you deduct actual expenses for your car or use the standard IRS mileage rate, it can translate into big savings on your tax bill.

When you need to use an app-based program to do your contractor job, you can also deduct mobile phone expenses. Here are some other interesting deductions for drivers:

  • Bottled water, snacks and amenities for customers
  • Floor mats
  • Car tool kit
  • First aid kit
  • Tire inflator and pressure gauge
  • Portable battery jump pack
  • Flashlights and flares
  • Roadside assistance plans
  • Office supplies

As with any business, you can only deduct the portion of these expenses directly related to your business use.

With the tax law set to change in 2023, it’s more likely that those regularly engaging in a side hustle like ride-sharing or freelancing will start to receive 1099’s from companies. This is due to a tax law change that changed the threshold for issuing 1099’s. Previously, credit card companies and e-commerce platforms needed to send these out only if they processed over 200 transactions or over $20,000 in payments. Now that number will be $600 regardless of the number of transactions. Contractors will typically use Schedule C – Profit or Loss from a Business to report this income.

Overall, the process of self-reporting your income as an independent contractor can be confusing and overwhelming and you might need the help of a tax professional. At ClarkSilva, our qualified team is here for you whether you need to ask questions or be guided through the process of getting your business’s financial future off the ground. Contact us today!