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It's that time of year again. Tax season. If you're a DoorDash 1099 driver, it's important to know the tax information before filing your taxes. This article will go over what IRS forms you'll receive, business deductions, quarterly taxes, and lastly how to track these expenses in order to save both time and money when doing your taxes.
This is an informative post on how to take care of your DoorDash taxes to save yourself some money this tax season.
Note: If you are looking for an easy solution to track you tax deductions and manage your taxes, try Bonsai Tax. With our expense tracking software, you'll be able to record all your write-offs in one place (on average, users save $5,600 from using our app) and be reminded of filing deadlines. Claim a 14 day free trial today.
The Types Of DoorDash 1099 Forms You'll Receive For Reporting Your Income
When you are a DoorDash independent contractor, you are part of the growing gig economy. There are a few different forms you'll receive. The first form is the 1099-NEC (you used to get a 1099-MISC) and the second one is the 1099-K.
These will be used to identify your tax information on all of the other documents that are provided by DoorDash throughout the year in order to file taxes. The IRS requires companies to deliver or mail these forms by January 31. It could take 3-5 days, so you'll receive a form 1099 within that time frame after February 1st.
There are different requirements for independent contractors to receive each one that we'll break down in the next section.
When You Will Receive A 1099-NEC
The majority of DoorDash personal delivery drivers will get this tax form for non-employee compensation. You'll get a form from Doordash's partners, Stripe and Payable.
The requirement to receive this form is if you earned more than $600 in the tax year for your services, you’ll be sent a 1099-NEC form.
In 2020, the IRS has mandated that DoorDash report Dasher income on the new Form 1099-NEC rather than the Form 1099-MISC.
If you didn’t select a delivery method on your account, DoorDash automatically mails and emails your 1099-NEC to the address on file by February 1.
Payable sent out the invitations to file online between January 9th and January 12th in 2020. Through your Payable account online, you can set the delivery preference.
The total earnings or payment information listed on this form do not account for your cash tips, but you'll still need to report that.
Requirements For A 1099-K
If you receive deposits from a partner platform like PayPal, you may receive a tax form 1099-K.
A Dasher would need to have conducted 200 transactions and have a gross volume of $20,000 to meet the 1099-K requirements.
Gross Volume, which in DoorDash's case is the subtotal of payments and tax on processed orders.
However, there is one exception to this rule. If you made more than $600 in total earnings from deliveries in Vermont or Massachusetts, you will receive a 1099-K regardless.
What To Do If You Do Not Get A DoorDash 1099
If you meet any of these requirements and you didn't receive a tax form, there are a few reasons why.
- There is an error in the business details on your account
- You made less than $600 from delivery payments. The IRS requires companies to deliver a 1099 tax form if a business paid out a contractor $600 or more. So, Dashers who earned $600 or more within a calendar year will be given a 1099 form
Note that just because you do not get a 1099, you will still need to report your income when filing taxes.
All you need to do is contact DoorDash and file a support case.
DoorDash Taxes You Need To Pay
Dashers need to pay taxes for their earnings on their delivery income; self-employment taxes and income taxes. Before we get into how to lower your tax bill, let's break down each of these,
Paying The Dreaded Ol' Self-Employment Tax
The self-employment tax is your Medicare and Social Security tax which totals 15.30%.
Dashers will not have their income withheld by the company to pay for these taxes, so you'll need to pay them on your own. If you earn more than $400 as a freelancer, you must pay self-employed taxes.
If earnings were less than $400 in profit, they do not owe self-employment taxes but contractors must still file income taxes.
It is important to go through each form to spot wrong information like how much you earned. After you check your bank information and calculate all the deposits, if it is wrong on the 1099, contact DoorDash immediately.
You can use Bonsai's free online 1099 tax calculator to see how much you'll owe in taxes.
Qualified Business Income (QBI)
There is a remarkable new deduction for independent contractors who report business income on their personal return. When you freelance for gig companies as a Lyft contractor, Rover, or Instacart 1099 worker, you can take off 20% of your taxable income through the QBI deduction.
Reporting Your Income Tax
Everybody needs to pay income taxes. The money you earn will be subject to the regular income tax rate.
You Need To Pay Quarterly Taxes As An Independent Contractor
Taxes must be paid either through withholding or anticipated tax payments as you earn or receive income during the year in the U.S.
What this means is that you'll need to pay taxes every quarter.
If overestimated how much money you'll make this year, then you'll receive a refund. There are also penalties for underpaying or missing your estimated taxes. Here are the due dates for when Dashers need to file these taxes.
Note: If you want to be reminded about your quarterly tax deadlines and also track your expenses/tax deductions, try Bonsai Tax. Our tax software for freelancers has everything you need to manage and file your 1099 taxes. Claim your 14-day free trial here.
Due Dates To Send Your Payments
- April 15th
- June 15th
- September 15th
- January 15th (of the following year)
You can easily send your tax payments to the IRS via direct pay.
Tax Deductions You Can Take Advantage Of On Your Schedule C
A perk of being a Dasher or independent contractor is you can claim tax write-offs to lower your taxable income, and legally avoid paying 1099 taxes. These are expenses related to being a 1099 delivery driver. These expenses can be claimed as tax deductions from your tax bill when they year ends.
it is vitally important to keep a clean record of these expenses and to take advantage of what you can. The contractor's profit or loss is calculated using Schedule C. We'll walk you through the steps of filing your Form 1040 and Schedule C with the Internal Revenue Service.
Only your net profit as an independent contractor is your taxable income. You can track your expenses by using our free 1099 excel template.
Here is a list of common tax deductions self-employed DoorDash drivers can claim on your Schedule C:
- Mileage
- Deduct cell phone bills, accessories (i.e.car charger, phone holder), and cellular data
- Hot bag (to keep the food warm!)
- Tolls
- Parking fees
- Car insurance/payments
- Health insurance
- Gasoline
- Car maintenance or repair costs
If you need help filling out your Schedule-C, talk to an accountant or tax professional.
Remember, if you use a personal car for dashing, you can only pick one IRS-approved method to report vehicle expenses; the actual expense method or the standard mileage method.
I'll cover the difference between each one and offer advice on which one you should use.
Note: Learn more how we can automatically organize and track all your tax deductions for you. See for yourself why freelancers are raving about our tax app. Click here for a 14 day free trial of Bonsai Tax.
Tracking Miles For DoorDash Taxes
The IRS introduced an easy way to deduct vehicle expenses so they wouldn't have to hoard or track their receipts.
This method is called the Standard Mileage Deduction. It's really simple to calculate your deduction. All you need to do is track your mileage for taxes. Take note of how many miles you drove for DoorDash (the app will tell you) and multiply it by the Standard Mileage deduction rate.
In 2020, the rate was 57.5 cents. So, if you drove 5000 miles for DoorDash, your tax deduction would be $2,875.
Breakdown Of The Actual Expense Method
The actual expense method requires contractors to keep detailed records of their receipts for business-related expenses.
This method will allow you to deduct expenses like gasoline, car repairs, insurance, tire replacements, licenses and registration fees, etc.
Typically, tracking your receipts will result in a higher tax break. Calculate your tax deduction for both methods for yourself to see which one you give you the bigger write-off.
It's Time To File Your DoorDash Taxes!
Now that we reviewed the process for dealing with your taxes, you should be able to easily file them and avoid any penalties.
Keep in mind, this article is only for information about dealing with your taxes. Again, if you have any questions about the process or need tax advice, we advise that you contact a tax professional to help you answer any questions.
What Defines a Verbal Contract?
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.
When is a Verbal Agreement Legally Binding?
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:
- Offer and acceptance: An offer is made and accepted by another party involved in the agreement;
- Consideration: The involved parties must exchange something of value (money, a service, time, etc), this is known as consideration;
- Intention and certainty: All parties must fully understand the terms of the contract and intend to make a legally binding agreement freely; and
- Capacity: The parties must have the capacity to legally enter into the contract; they're above age and of a stable mindset.
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.
How strong is a verbal agreement 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.
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get started nowWhen are verbal agreements not enforceable?
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:
- The sale of real estate or vehicles
- Real estate leases lasting longer than one year.
- Property transfer following the death of the owner.
- The case of a party agreeing to pay debt for someone else.
- Any contract that requires more than a year to fulfil.
- A contract involving and exceeding a specified amount of money (which varies by state).
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.
How are Verbal Contracts Enforced?
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?
How can you prove an oral contract?
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.
Written vs Verbal Contracts: What's the Verdict?
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.
Say hello to digital contracts
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.
Benefits of written contracts
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.
Create Professional Contracts with Bonsai
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?
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