If you’re brand new with using your car to deliver anything, you’re wondering about tax liability and car expenses. I’ve been delivering for over three years, so I know the math.
Taxes. I have no idea what your tax liability will be, so a general rule of thumb is to save 20% of your weekly gross income. You might get money back, you might owe thousands, but you certainly don’t want want to end up owing money to the IRS come April that you don’t have. Better safe than sorry. Remember that you’re a contractor which means taxes are not taken out of your pay. You also owe self-employment tax.
The only major expense you can deduct is mileage, which is a 58 cents per mile deduction for 2019. You cannot deduct expenses and mileage – you have to choose one or the other. And the single best piece of advice you’re going to get is this: Ignore all tax advice unless the person giving you the advice is a licensed tax advisor with a federal PTIN number.
A very big mistake is listening to some friend of yours who actually got money back, telling you not to worry, you won’t owe. Everyone’s tax situation is different and it also doesn’t mean they filed correctly. I did this PT starting last Oct. I owed $211 federal and got $1,530 back from the state. But that’s just my situation. Yours will absolutely be different.
I have two banks. One is my main bank for all of my finances. The other is an online bank (I use Discover.) I cut up the debit card they sent, so the only way for me to pull money out of it is to transfer back into my main bank.
Car expenses. Depending on how many miles you’re driving a week, you should be putting at least $25 per week aside for maintenance; oil changes, brakes, tires and tune-ups. That does not address your car breaking down. You would want to build up to a $2,000 cushion to cover repairs.
I’ve seen a lot of drivers not save and wind up in a catch-22; car breaks down, repairs are $1,000, they don’t have the money but now they also don’t have any income and can’t even get to their regular job. Most people would tell them to rent a car, but if they don’t have a major credit card, the rental company might want to place a $500 hold on their debit card.
I’ve seen a lot of drivers not have the $200 to replace their brakes, so they keep driving, and now it’s $1,500 for brakes, rotors and calipers.
So I’m just saying it’s a rookie mistake to not save at least 25% of what you’re making each week.