What Can Delivery Drivers Claim on Taxes?

Delivery drivers can significantly reduce their taxable income by understanding and properly claiming eligible business expenses. This directly impacts their overall tax liability.

Understanding Your Tax Status

Claiming business deductions depends on a delivery driver’s tax classification. Drivers fall into one of two categories: employees or independent contractors. The Internal Revenue Service (IRS) distinguishes between these roles based on the level of control and independence in the working relationship.

Most delivery drivers operate as independent contractors, often receiving a Form 1099-NEC for non-employee compensation. This classification means the driver is considered self-employed, running their own business. In contrast, an employee receives a Form W-2, and their employer withholds taxes from each paycheck. For tax years 2018 through 2025, W-2 employees cannot deduct unreimbursed business expenses. This distinction is important, as independent contractors are primarily the focus for claiming business deductions.

Common Deductible Expenses

Independent contractor delivery drivers can deduct ordinary and necessary business expenses. Vehicle expenses represent the largest deduction category. Drivers have two main options for deducting these costs: the standard mileage rate or actual expenses.

Standard Mileage Rate

The standard mileage rate offers a simplified approach, covering the costs of fuel, maintenance, repairs, tires, insurance, registration fees, and depreciation or lease payments. For 2024, the business standard mileage rate is 67 cents per mile. This method requires diligent record-keeping of business miles driven, which is then multiplied by the applicable rate.

Actual Expenses

Alternatively, drivers can deduct actual vehicle expenses, which involves tracking all costs related to operating the vehicle for business. This includes amounts spent on gasoline, oil, repairs, and tires. Other actual expenses include vehicle insurance premiums, registration fees, and interest paid on a car loan. Additionally, a portion of the vehicle’s depreciation or lease payments can be included. Choosing the actual expense method requires meticulous record-keeping for every expense.

Other Expenses

Other expenses are also deductible. A portion of phone and internet expenses can be claimed if these services are used for business communication and navigation.

Supplies directly used for deliveries may also be deducted. These include:
Insulated bags
Vehicle mounts for phones
Charging cables
Personal protective equipment like masks and gloves

Professional fees, including those paid for tax preparation services, are deductible. If a driver uses a dedicated area of their home exclusively and regularly for business, they may qualify for the home office deduction. This deduction can be calculated using either a simplified method ($5 per square foot up to 300 square feet for a maximum of $1,500) or the regular method, which involves calculating the actual percentage of home expenses attributable to the business. Tolls incurred and parking fees paid while actively making deliveries are also legitimate business deductions.

Calculating and Reporting Expenses

Accurate and consistent record-keeping is important for all independent contractors, including delivery drivers, to substantiate their claimed business expenses. Maintaining detailed logs of mileage, receipts, and income and expense records provides necessary documentation for an IRS inquiry. Digital apps, spreadsheets, or physical folders can be effective tools for organizing these financial records.

Vehicle Expense Choice

When it comes to vehicle expenses, the choice between the standard mileage rate and actual expenses should be carefully considered. The standard mileage rate simplifies the calculation by encompassing most vehicle operating costs. Drivers must track their business miles accurately to use this method. For instance, 20,000 business miles in 2024 would result in a $13,400 deduction (20,000 miles x $0.67/mile).

Opting for actual expenses requires adding up all specific costs, such as gas, oil changes, repairs, and insurance. This method can result in a larger deduction, especially for newer or more expensive vehicles with significant repair costs, but it demands comprehensive record-keeping for every single expenditure. The IRS requires that if the standard mileage rate is chosen for a vehicle in the first year it is used for business, that method must be used for the entire lease period for leased vehicles. For owned vehicles, drivers can switch between methods in subsequent years, but using the standard mileage rate in the first year may affect future depreciation options.

Reporting

Independent contractors report their business income and expenses on IRS Schedule C, Profit or Loss from Business (Sole Proprietorship). This form summarizes business revenue and deductible expenses, determining the net profit or loss from delivery driving. The totals from various expense categories are then entered onto the appropriate lines of Schedule C. The resulting net profit or loss from Schedule C is then carried over to the individual’s Form 1040, affecting their overall taxable income.

Other Important Tax Considerations

Independent contractor delivery drivers face additional tax obligations beyond income tax due to their self-employed status. One consideration is self-employment tax. This tax covers Social Security and Medicare contributions for self-employed individuals. For 2024, the self-employment tax rate is 15.3%, consisting of 12.4% for Social Security on earnings up to $168,600 and 2.9% for Medicare on all net earnings. This tax is calculated on 92.35% of a taxpayer’s net earnings from self-employment, as reported on Schedule C. Taxpayers can deduct one-half of their self-employment tax when calculating adjusted gross income.

Estimated Taxes

Another aspect for independent contractors is estimated taxes. Since taxes are not withheld from their income, individuals are required to pay estimated taxes quarterly throughout the year to cover their income tax and self-employment tax liabilities. This helps prevent a large tax bill and potential underpayment penalties.

Estimated tax payments are due on April 15, June 15, September 15, and January 15 of the following year. If any of these dates fall on a weekend or holiday, the deadline shifts to the next business day. Estimated tax payments are required if a taxpayer expects to owe at least $1,000 in tax for the year. Failure to pay enough tax through withholding and estimated payments can result in penalties.