Door Dash tax calculations

Factual Questions
1

On Quora someone asked what taxes he would owe on $4000 of Door Dash gross income. The paragraph below is a response, is it correct? One caveat, the OP did not say how many miles he drove, the responder used 500 miles. Well if anyone knows how to make $8 a mile on Door Dash let me know, but for the accuracy of the math lets assume it is correct.

Start with the $4,000 of income and subtract your auto mileage expense at the standard mileage rate of 57.5 cents per mile. The deduction for 500 miles is $287.50 and your net business income is $4,000.00 - $287.50 = $3,712.50.

Next, compute your “net earnings from self-employment” by multiplying your net business income by the factor 0.9235. $3,712.50 x 0.9235 = $3,428.49. This is your tax base for the self-employment tax that funds Social Security and Medicare. The self-employment tax is computed at a rate of 15.3 percent. $3,428.49 x 0.153 = $524.56.

Next, subtract half of the self-employment tax from your net business income. Half of $524.56 is $262.28. $3,712.50 - $262.28 = $3,450.22. This is your adjusted gross income and your earned income. Your standard deduction as a single individual in 2020 is $12,400, so your taxable income and your income tax are both zero.

Because you were at least 25, but not yet 65 in 2020 with no dependent children, you are eligible for an earned income credit of 7.65 percent of your earned income. $3,450.22 x 0.0765 = $263.94.

*Your net federal tax bill is equal to your self-employment tax minus your earned income credit. You owe $524.56 - $263.94 = $260.62.

I’m not really concended about this for this year, didn’t drive that much, but for next, Dashing will be my only job and am trying to plan ahead.

2

It’s not strictly wrong, but it’s a point solution.

The biggest caveat I see is the EIC. If this is your only job and you made enough money on it to live, odds are the EIC would be mostly or entirely phased out. Which has the effect of increasing your total taxes because you no longer get a partial credit.

The other big caveat is the standard deduction. Up to the point you net $12.5K, you pay zero tax. On all income above 12.5K you pay the tax rates computed earlier. Which are on the order of 20% all told.

Bottom line: come up with some reasonable guesses for your expected annual gross and the expected mileage to achieve it. Then follow that guy’s valid recipe using your numbers and the correct tax rates and bands from the IRS to see where you end out.

Note also that taxes are not your only expense. You’ll need to pay for the car, the insurance, and the fuel out of your actual income. Taxable income is a nice useful number to know, but taxable income, after-tax income, and “spendable net income” are three very different things.

Aside:
I sure don’t know about Door Dash specifically, but just about everyone who’s studied the economics of driving for Uber or Lyft say it’s not even a minimum wage job when fully and correctly accounted for. There are exceptions for folks who work peak hours only in dense urban areas with lots of riders and lots of short trips. It’s much less true in suburbia.

I have to imagine the economics of driving for the food services is even worse; there’s a lot of unpredictable sitting at the restaurant waiting for the food to come out.

And the daily peaks and valleys of demand for food delivery are much steeper than for passenger rides in general. IOW, you might be able to make decent cash 2-1/2 hours per day: one hour at lunch and 1.5 hours at dinner. But you can’t make squat any other hours of the day. Which sharply curtails your annual income potential.

Good luck. Seriously, not snarkily.

3

I thought the standard mileage rate took account of all the expenses involved in using a car: gas, insurance, depreciation, repairs, etc. so you cannot add those to your expenses. On the few occasions I used a car officially (to go to conferences, for example, I always felt overcompensated by the mileage because the insurance was fixed, depreciation likewise. But that might change if I drove as a profession.

4

I know nothing about American tax, but in my experience people who provide their own vehicles for work generally fail to take depreciation into account.

For many cars, depreciation is the second largest cost after fuel and a car used as a taxi depreciates faster than one used privately.

5

In the US, you can either use the standard mileage rate (which includes everything except parking and tolls) or actual expenses attributed to the business miles ( parking and tolls are still separate). It’s possible there are some situations where actual expenses are preferable but I never ran into them.

6

I understood that you pay no federal taxes on income if you make $12,500 or less, but you still pay self employment tax as calculated above.

I live in a small town with minimal traffic but there are 10,000 studends and all the restaurants are within a 3 mile radius, I can do fine driving 4 hours a day during busy times, lunch or diiner hours and late at night the students are ordering food as they study or get home from the bars

7

You need to buy a well-used (and small) car before you can get per-mile depreciation down below per-mile fuel costs. If you buy a new Honda Civic for $24,000 (that includes tax), drive it for 100,000 miles and then sell it for $5,000, the depreciation is 19 cents a mile, whereas fuel (35 MPG, $4/gal) is only 11 cents a mile.

Correct, you can’t deduct them in your income tax calculation, since you already are receiving the IRS’s standard per-mile deduction. I think the point is that in judging whether a job like this is a good deal, many people think only of this nice fat deduction for using their car to make a living without also thinking of the money they’ll be spending to own/insure/maintain/fuel that vehicle - which, in theory, is about the same. The only way you can swing this deduction to your favor is to buy a very small car that’s racked up a bunch of highway miles in just a few years. High miles turns a lot of buyers off, so you’ll get a good price - but if they’re highway miles, the car should be in pretty good shape, so it won’t need a lot of TLC. Maybe a Nissan Versa: about $16K new, but with a lot of miles and a few years on it, you could pick it up for maybe $8K.