Starting your own business can be rewarding, but also difficult. One of the most challenging parts of being a 1099 driver is understanding what taxes you owe and how to file them on time. With this guide, we'll walk you through everything from deciding if self-employment is for you to how to get started with filing your taxes so that come tax season, all of your bases are covered.
The U.S Laws can seem complicated at times, but don't worry—we've got your back. In our blog post today, we're going to discuss what's involved in filing taxes as a 1099 contractor and give some helpful tips for doing it right the first time. Sound good? Great, let's get started.
Note: If you are a gig or truck driver and you would like some help to manage deadlines, track business expenses, and estimate your taxes, try Bonsai Tax. Our tax software helps you discover deductions, organize your trucking or gig work receipts and maximize your savings from your tax bill. In fact, users of our software save an average of $5,600 from their tax liability. Claim your 14-day free trial here.
A 1099 independent contractor is not considered an employee. Instead, they are deemed as a freelancer or self-employed worker. A contractor is generally hired for a task or particular assignment to be performed. Because they are not employees, 1099 workers are not paid wages or a salary.
There are many laws in place for employers to use to determine if someone should be an employee or independent contractor. Some of those include:
Sometimes companies will misclassify truck drivers to save money on costs. If companies have to hire drivers as employees, this adds a bunch of expenses like paying for benefits, workers' compensation, or unemployment insurance. States like California implement a legal litmus test or the 'ABC test' to make sure a company is not misclassifying employees as freelancers. In the trucking industry, this test could cause a lot of problems because a driver would be free from control from the hiring company in regards to the performance of the work or delivery job and how it gets done.
If you are being misclassified and having your rights infringed upon, contact an attorney to assist with taking your trucking company or client to court. A trucker should be compensated for being taken advantage of by their employers.
Although there are many 1099 forms, freelance drivers will only have to deal with a couple of them. The company or client's deadline to mail 1099s to taxpayers is typically January 31. If you are a delivery driver or gig driver that does not receive the form after that date, contact your employer. Let's review some of the most common IRS forms 1099 drivers receive.
The 1099-NEC is the most common 1099 form sent to freelancers. This form took over the 1099-MISC reporting requirements in 2020 for miscellaneous income. The prerequisite to receiving this form is if you were paid at least $600 in prior-year earnings from one source. For example, if you earned $951 as a GrubHub contractor, you'll be sent a 1099-NEC.
The requirement to receive a 1099-K is if your earned over $20,000 and have more than 200 transactions in the previous year. The IRS tax form, 1099-K, is also sent out for merchant or 3rd party payment transactions so don't be confused. Here are the IRS instructions for this form.
An employer or client does not pay any of the driver's Social Security or Medicare taxes (self-employment tax). These taxes are the sole responsibility of the independent contractor. The self-employment tax rate is 15.3%. 12.4% for Social Security and 2.9% for Medicare.
The U.S operates on a system where self-employed folks who are paid in full without having any taxes withheld from their payments, need to pay taxes on their income four times a year. This is so contractors don't have to pay one big tax bill at the end of the year. Let's go over when estimated quarterly taxes are due.
Currently, the due dates for estimated taxes are:
You can send your payments through the IRS's website.
It is important that you send the correct amount four times a year to the IRS to avoid any penalties or fines. If you send or pay less money than you should for your quarterly taxes, you could face a tax underpayment penalty.
Don't worry so much about the overpayment of estimated taxes as it would just result in a refund at the end of the tax year.
To figure out how much to send for your quarterly taxes, take your entire tax burden (this includes self-employment tax, income tax, and any additional taxes.) for the previous, and divide that number by four.
The difference between a W2 versus a freelancer is simple. A W2 worker is a company driver. The employee would receive regular wages with employee benefits. The employer would also withhold money from their wages to pay for income taxes. Employers have a high degree of control over the employee's or driver's work and hours.
To be labeled as an independent contractor, the driver has to perform services outside the usual course of the company business. Sometimes, a trucker would establish their own business structure like an LLC as well.
Keeping track of receipts for taxes is vital to lowering how much you'll owe to Uncle Sam at the end of the year. Tracking your miles and having clean records of all your expenses is necessary to show the IRS you have legitimate self-employment deductions.
If you decide to go this route, try our online mileage log template to help out with that.
Now, let's review a list of the most common deductions available to freelance drivers.
Note: if you want to use a tax software to track and organize all your deductions for you at the push of a button, try Bonsai Tax. Our tax hub is a freelancer's dream. Record all your receipts, estimate your taxes, and get filing deadline reminders. Bonsai Tax could do it all. Our users save $5,600 on average by using our software. Claim your 14-day free trial today.
There are a few common costs of driving a truck or gig apps that aren't deductible. Here's a list.
Trucking and being a freelance driving is hard enough. We hope this guide has helped walk you through what you need to do in order to file your 1099 truck delivery or gig worker taxes as well as give you some useful information. Refer back to this guide in order to have a smooth tax season. See for yourself how our tax software makes it easier for you during tax time and save you thousands of dollars. Try a 14-day free trial here.
Remember, it is your job to properly file your tax duties. We need to state that this article is NOT tax advice. We always recommend you consult with a tax professional or accountant for any advice.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?