Whether you’ve been a transporter for years or you’re just getting started, you’ve probably wondered how to file taxes as an independent contractor. Non-traditional employment has become very popular since the pandemic began in early 2020. More people are opting to be their own boss using innovative platforms like the CitizenShipper marketplace.
With this shift towards the “gig economy,” it’s important to know the proper way to file taxes as a self-employed earner. You want to avoid making mistakes and owing money on Tax Day — or even worse, being audited. But you should also be aware of common deductions and credits so you can maximize your earnings.
To help our drivers make the most out of being an independent contractor, we’ve created this guide to walk you through some steps to take when you file your taxes for 2023.
What Kinds of Deductions Can I Claim When Filing Taxes?
Deductions on Your Vehicle
If you’re self-employed and earning work through CitizenShipper, your vehicle is the most important tool of the trade. Putting thousands of miles on your odometer will cause wear and tear on even the most durable cars, so take advantage of all auto-related itemized deductions. Because you’re self-employed and use your car for work, you’re able to deduct the following:
- The cost of fuel and oil
- Vehicle depreciation
- Interest on car payments or leasing fees — subject to the lease inclusion amount
- Car insurance premium payments
- Registration fees and licenses
- The cost to replace tires
- Garage rental costs
- Necessary accessories like phone chargers, GPS technology and even satellite radio
Track these deductions as you go. It’s very difficult to accurately calculate these expenses months later when it’s tax time. One way to keep track of mileage is through a free mile-tracking app like Stride Tax.
Mileage Tax Deduction
Another approach for self-employed taxpayers is the standard mileage deduction. Instead of calculating the expenses from the list shown above, you can base your deduction simply on the business-related mileage you logged in 2023.
- The mileage deduction rate for 2023 is 65.5 cents per mile.
- If you use your vehicle for personal use, taking the mileage deduction may give a more accurate estimate and help you avoid an audit.
- Not all mileage is tax deductible. You can only deduct mileage driven to pick up a shipment, mileage driven with the shipment in your vehicle and any other business-related mileage. That means you can’t deduct miles driving back home with an empty vehicle after delivering a shipment. This is just another reason to stack shipments!
Whether you take the mileage tax deduction or the itemized actual car expense deduction, you’ll use the IRS Form Schedule C. Place the mileage deduction on Part II, line 9.
According to Tax Outreach, the type of initial deduction you make on a vehicle has an impact on how you can take deductions in the future.
- If you use the mileage tax deduction in the first year, you can choose either deduction in the following years.
- Using the actual car expense deduction in the first year means you’re locked into using those deductions for as long as you drive with that vehicle.
- Take the mileage tax deduction the first year so you have more options in the future.
Travel Tax Deductions for Independent Contractors
Travel is another important aspect of your self-employment through CitizenShipper. Because of this, you can take deductions on travel expenses related to transporting. These expenses are broken down into ordinary and necessary expenses.
- The IRS defines an ordinary expense as one that is common and accepted in your industry.
- The IRS defines a necessary expense as one that’s helpful and appropriate for your business.
Under current regulations, there are several deductions transportation employees can claim from travel-related expenses. However, any expenses for personal business during the trip cannot be deducted.
- You can choose to deduct 50% of the cost of your meals on the road or 50% of the standard meal allowance — which is $59 or $79 for a day in 2023.
- You can deduct lodging expenses while transporting.
- You’re also able to deduct incidental expenses such as tips and fees.
Deductions on Your Home Office
Most drivers on CitizenShipper bid on shipments and negotiate rates and terms from their home. If your home office meets IRS requirements then you may be able to deduct some expenses.
- The IRS is very serious about home office deductions. The home office must be used exclusively for work and must be your principal place of business.
- “Exclusive use” means the portion of your home must only be used for business. If your kids play in the room or it doubles as a guest bedroom, then it fails to meet the exclusive use rule and doesn’t qualify for deductions.
- It has to be the principal place of business. Your space doesn’t qualify for deductions if you do most of your bidding and negotiating while on the road.
- We don’t recommend taking the home office deduction if you’re not sure the space meets IRS requirements.
- If you’re confident it meets IRS requirements, you can deduct a portion of your mortgage or rent, property taxes, utilities, and repairs.
Independent Contractors Pay Quarterly Estimated Tax and Self-Employment Tax
When you’re self-employed as an independent contractor, you aren’t subject to payroll taxes. Unfortunately this means you’ll pay slightly more in taxes at the end of the year due to the Self-Employment Tax. When you file taxes as an independent contractor you must understand the Self-Employment Tax and Quarterly Estimated Tax to avoid any penalties.
What’s the Self-Employment Tax?
Self-Employment Tax essentially a version of the tax a traditional employer would normally withhold from your paycheck and pay on your behalf. Traditional employers split this cost with employees. Unfortunately, self-employed workers have to pay the entire cost.
The tax amounts to a little over 15% of your income:
- You’ll owe 12.4% for Social Security.
- Medicare taxes are 2.9%.
The good news is that you can deduct your Self-Employment Tax from your Income Tax at the end of the year. You can claim 50% of the Self-Employment Tax as a deduction.
What Is the Quarterly Estimated Tax?
The IRS wants you to pay taxes as you earn money — that’s why employees have their income tax withheld from each paycheck. Self-employed individuals don’t have taxes withheld each time they earn money so they’re expected to pay a Quarterly Estimated Tax.
If you have any further questions, the IRS has a helpful guide to find information on paying taxes as a self-employed individual.
Now that you have an idea of the steps to take when you file your taxes, you’re ready to continue building on your small business success. Log into your CitizenShipper account today and win even more bids on shipping jobs!
Disclaimer: We aren’t tax experts. You should only use this post as an informational guide. There can be many variables when you’re filing your taxes, including your location, where you traveled during transportation jobs, and your income. Be sure to reach out to a tax professional for any specific questions about filing your taxes as an independent contractor through CitizenShipper.
Content Writer at CitizenShipper. I’ve also been published on The Penny Hoarder, Mommy Poppins and mxdwn.