Working for Shipt presents a host of benefits such as setting your own working hours, never reporting to an employer, and building client relations. But as the tax season approaches, you face a daunting challenge: filing Shipt 1099 taxes on your own without overpaying them.
Whether you drive for Instacart or Shipt as a grocery delivery driver, read on to learn about the tax forms you have to complete, the 1099 forms you may receive, and how to maximize your 1099 deductions.
Note: If you want tax software to help you organize all your receipts, estimate your taxes and send you filing reminders, try Bonsai Tax. Our online software can help you maximize your business-related deductions and save you a lot of money during tax time. In fact, users typically save $5,600 from their tax bill by using Bonsai Tax. Claim your 14-day free trial here.
Just like if you were a 1099 Instacart shopper or an Amazon Flex driver, as a Shipt worker, the Internal Revenue Service classifies you as an independent contractor which means you’re basically your own business. With this classification, you’re often abiding by a different set of rules compared to the typical employee.
For one, you have to pay your federal and state taxes on your own as they’re not taken out of your paycheck. If you’re employed, your employer covers a portion of your Social Security and Medicare taxes.
As a solopreneur, however, you’re responsible for the employer’s portion, so you’re paying both halves. Keep in mind that the Shipt tips you receive are taxable too, unfortunately.
You’ll also not receive a W-2 form from Shipt because you’re not their employee. Instead, you’ll likely receive one or two 1099 forms; which will depend on how much money you make from the platform.
There’s a silver lining, though. You’re entitled to the tax benefits that the IRS offers self-employed workers. One of these benefits is claiming tax deductions. You can write off some of the expenses you incur when shopping for clients, and pay less tax when filing your information returns.
Although there are many 1099 forms for freelancers, you’ll mostly be handling two 1099s: Form 1099-K and Form 1099-NEC.
The deadline for receiving these forms is typically January 31st. So you can expect Shipt to either mail you your 1099 by that date or notify you via email or the mobile app.
That said, here’s a quick overview of the two forms:
It reports how much earnings you’ve made over the course of the year. The IRS requires all companies to submit this form if they’ve paid you at least $600 in a calendar year. In the past, business income used to be reported in Form 1099-MISC, but that has since changed since the 2020 tax season.
The 1099-NEC did not replace the 1099-MISC, it just took over the reporting requirements for non-employee compensation.
You don’t have to mail this form to the Internal Revenue Service when filing returns; Shipt sends the form to both you and the IRS before the January 31 deadline.
You’ll use the form to determine how much income to report on Schedule C, which we’ll talk about later. Mark your calendar and stay on top of the due dates for 1099s.
Late filing of required 1099s can result in fines ranging from $50 to $280 every 1099, up to a maximum penalty of $1,130,500 per year for your small business.
Form 1099-K is a form that helps in tracking payments that you receive through payment settlement entities (PSE). PSEs can include credit card companies, digital payment processors, and freelancing websites.
To get a Form 1099-K, the requirements are as follows:
But starting from 2020, the threshold for receiving the form reduces to $600 in earnings.
A misconception that many freelancers have is that they don’t need to report their self-employment income on a tax return if they don’t receive a 1099. This couldn’t be further from the truth; you need to report all your earnings.
Failing to disclose your income to the IRS can attract some hefty penalties, and in the worst cases, possible jail time.
So if you earned $350 in referral fees, ensure you include this income in your returns, even if Shipt didn’t send you Form 1099-NEC. Make sure you retain the documentation of your earnings -- invoices, receipts, expense reports -- so that when you don’t receive a 1099, you can report the accurate income. You can find such documentation in the account app or your bank statements.
If you want to estimate your self-employment taxes for the year, try our free self-employment tax calculator online.
To report your Shipt self-employment income to the IRS, you’ll need to complete Form 1040, Schedule C, and Schedule SE.
The IRS requires all taxpayers to fill out Form 1040. It’s a form that provides a summary of your total income throughout the year. It also provides information on the deductions and tax credits you’ve claimed.
This information is used to determine how much you owe them in taxes. The other forms you complete help in breaking down, in detail, each income source that you’ve outlined in Form 1040, and types of deductions and tax credits.
Schedule C helps self-employed folks with reporting business income and expenses. It allows the IRS to determine how much business profit you’ve made, as you calculate the difference between your income and expenses. Typically, you are only taxed on this profit, which is entered in Line 12 of Form 1040. Attach this form to your tax return.
Schedule SE helps taxpayers figure out how much they owe to Uncle Sam in self-employment tax. Self-employment tax combines Social Security and Medicare tax -- similar to the taxes taken out from your paycheck when you’re employed.
If you’ve earned at least $400 in a year from Shipt income, then you need to report this income to the IRS through Schedule SE.
Freelancers are allowed to write off any expenses that are “ordinary and necessary” for their line of work. These are known as business expenses. It is vital to track and record your receipts to claim as a deduction at the end of the tax year. So, here are the deductions you can claim when working as an independent contractor or grocery delivery driver.
Note: if you want to maximize your tax deductions and save money during tax time, try Bonsai Tax. Our software scans your credit card/bank statements to uncover tax write-offs you can claim on your taxes. Users of the app typically save $5,600. Try a 14-day free trial today.
If you’re constantly talking to customers, you can write off a portion of your monthly telephone bill during tax time and claim a cell phone tax deduction. A good idea is to calculate the number of hours you use your phone when working for Shift and get a rough percentage.
Another way is to own a separate business phone that you use strictly for Shipt. In this case, you can deduct 100% of your phone’s cost plus the telephone bill.
The IRS allows you to deduct all the day-to-day items that you use to get the job done, and these expenses are 100% deductible. These business expenses are pretty straightforward. Office equipment and supplies that you use specifically for business purposes are deductible.
Tracking mileage can help you save a lot of money in taxes. Luckily, these days, you’ll find lots of tracking apps that can give you an accurate estimate of your miles.
Keep in mind that you can’t write off your first trip from your home to the store -- or your last trip to your home either. These trips are considered as commutes, and personal travel, so they aren’t deductible. What are deductible mileage, though, are your trips from the store to your customers’ homes.
Another great way to save more bucks is to also monitor your car expenses. Sometimes your car expenses may be more than your mileage expenses, and you can write them off instead. You can only claim miles or car expenses so choose the method that will bring you the greatest tax deduction. Read more about the actual expenses vs mileage deduction here.
Here is a full list of 1099 deductions you could take advantage of.
One of the main tax requirements for independent contractors is that they have to pay their taxes quarterly.
Employed workers have the luxury of paying their taxes after each paycheck, but as a freelancer, you have to estimate your taxes and pay on a quarterly schedule. The quarterly schedule applies to you if you expect to owe the government at least $1,000 when tax season approaches.
Making quarterly taxes isn't hard. All you need to do is calculate your total tax liability from the previous tax year and divide that number by 4 to get your quarterly tax payment.
According to the IRS, there are four due dates for estimated quarterly taxes. This due date is normally on the 15th of the months you must make your payments. If the due date falls on a weekend or holiday, then you’re required to settle your taxes on the following business day.
Making quarterly tax payments four times a year is a must to avoid receiving any penalties. Here are the due dates for quarterly taxes.
Be sure to send the correct payment total to the IRS. If you send less money than you are expected to owe, you could receive an underpayment tax penalty.
Another myth that many independent contractors have is that they can settle their owed tax in one lump sum when the year ends. But here are reasons why it may not be a good idea:
Check out our in-depth article if you forgot to pay quarterly taxes.
Note: the team at Bonsai always advises you to reach out to and get help from a tax professional if you have any questions or need tips. Claim your 14-day free trial today and start organizing your tax deductions and staying on top of important deadlines.
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?