I’m working on understanding income and deductions for my Independent Operator car service in USA.
Suppose I was sub-contracted out as a driver and the company I was contracting for deducted a fee for each job and then took 20 percent of the total (of each job).
What is my income and deductable expenses?
Expenses that are obvious to me are the IRS allowed 0.56 cents per mile I drive for the job, (including driving to the job, the job, and then driving home) and any amenities I provide like water or mints.
Income that is obvious to me is the 80 percent and tip (if any).
What I’m not understanding is the fee, $1.00 per job, for example.
Does the fee count as income and an expense? Or nothing?
Possibly not following you, if you are receiving the $1.00 it is income, if you are paying it out it becomes an expense. If they deduct the dollar as part of your fee then I would think you simply report the amount you are paid.
All expenses do on a tax return is reduce income…so it’s works out the same either way. You are taxed on what you get to keep, after the expense of making the moolah. Technically, it is safer to report the expenses, as long as you have documentation, but the example you gave shows the expense quite clearly. Be sure to say your stubs, in case of any IRS issue.
Double check this, especially the part bolded by me. Commuting is not generally deductible. If you start at a central location and then head to another, or stay driving afterwards, that may be a legitimate expense. If water and mints count as a business gift, they are usually allowable, but to some limitations. You should probably accountant up. Is this a newish job? At the beginning of next year, you should get a W2 or (sounds more like) a 1099. If the latter, keep records for all that stuff, but again an EA/CPA is recommended.
I have little idea of how American taxes work, but I would have thought that there would be several other expenses that would be deductible apart from mints. Do you have to launder a uniform, clean the vehicle etc? Do you have any accounting (apart from the IRS) to do? I used to be a self employed truck driver in the UK, and my accountant was able to reduce my tax by way more than his fee by claiming all kinds of expenses I had never thought of.
I am not an accountant, but I agree you should check with one.
Comment on your OP: Driving to and from the job is not usually a deductible expense in the US. The logic is that everyone must get to work, so it’s not a business expense but a personal expense. (If you need to drive from your primary work location to somewhere else – for instance, you need to go pick up client – that’s usually deductible.) And there is an exception if your primary work location is home, but you need to be able to prove that.
If your car is used exclusively for your business, then you can also deduct auto expenses (like insurance, maintenance, repair, etc.)
@ bob++ I can’t claim car maintenance if I use the 0.56 cents a mile - or car washes or tires or gas.
As of now there isn’t a uniform involved.
When I said I was driving to the Job, I meant I was driving to the location of the person needing a ride after accepting the ride from the company. At the end of the ride/job, I’ll often park and then wait for the next ride/job or if it is late, I’ll go home.
That would suck if I couldn’t claim the ride home as once I ended up 73 miles from home.
I will check with an accountant before I file.
Thanks for the heads up.
Edit: Car is not exculsive to the business, my personal car, that is why I’m focusing on the milage deduction.
My advice would be to include the full amount of income on line 1 for Gross Receipts. Deduct the company’s fees later on the Sch C as an expense.
Eventually, you should get a 1099-MISC that will list what the company thinks it paid you. If they calculate it like I see for real estate agents and insurance agents, it will match up to the gross amount they paid you, not the net amount after fees. In the case of a 1099-MISC, the IRS wants to see that your gross business income matches (or is higher than) the amount on the 1099-MISC; if you put a net amount as gross receipts so that the 1099-MISC is higher, you’re inviting a letter from the IRS asking why.
Ultimately, what’s important is that you do keep your own accounting. Sometimes companies mess up their 1099s or forget to file them; you’ll want to know the correct amount of income and expense regardless.
As for mileage, definitely see a tax pro. The others are right that home->job and job->home is usually commuting and not deductible, but there are some exceptions. Also, if you’re considered to be operating a vehicle for hire (like a taxi), you won’t get the mileage deduction at all; you’ll have to use actual expenses (cite).
I don’t know if this is similar, but over here we have a scheme for volunteers to collect people from home to take them to hospital appointments. This is operated via the local ambulance service and paid for from general taxation, although in some areas, a client is asked to make a ‘voluntary’ donation towards the cost.
A volunteer uses his own car and is paid whatever the current allowable rate from HMRC is for each mile with a client on board. Because this is not done as a business, but is simply paying an agreed rate for expenses, no tax is payable. A volunteer who plays the system well, can in fact make a fair profit from the scheme. Volunteers do have to keep records and submit returns, but checks are rarely if ever made.
See, that sounds to me like a vehicle for hire, which means the “volunteers” are not eligible to claim the standard mileage deduction.
Also, are you guys reimbursing at the business expense rate of 56.5c, or the volunteer rate of 14c? The allowable mileage deduction is different depending on the activity.
Okay, well now it looks like my whole plan is trash. That cite is 8 years old, no changes since then?
I’m thinking now that I need to total all expenses for the year, then use miles to determine “percentage” and then only claim that portion of the expenses.
Now if I could just figure out how to calculate depreciation… or does that even count? 2012 Vehcile purchased in November 2011. Didn’t start using it for the rides until May 2014? Does that help?
For a personal asset, you start depreciation at the “placed in service” date (May 2014) and using the current Fair Market Value of the asset. For a car, I’d recommend Kelly Blue Book to establish FMV.
