Gig Work Tax Deductions: How it works, tracking expenses, tax filing

What counts as gig work?

Gig workers are considered independent contractors by the IRS and need to pay their own taxes, like other self-employed people. But gig work is unique in that it’s usually short-term — projects/tasks are a matter of hours versus days or weeks. It’s also usually very low-barrier to entry — you don’t need special skills or extensive training to perform gig work. For example, anyone 18 and older with a valid license and auto insurance can deliver food for UberEats, just days after signing up.

If you’re self-employed in a profession that requires training or have long-term projects, you likely call yourself an independent contractor instead of a gig worker. But the good news is, all of the tax rules and deductions in this article also apply to you.

‍

How do taxes work for gig workers? 

Unlike a W-2 employee — who pays taxes on every paycheck — you need to pay all of your federal and income state taxes on a quarterly basis. That means you need to approximate your income for the year and pay the IRS (and your state tax agency, if you live in a state with income tax) four times a year. 

As a gig worker, you also need to pay a 15.3% self-employment tax on your income (12.4% for Social Security and 2.9% for Medicare). This applies if your self-employment earnings for the year exceed $400.

However, being an independent contractor comes with tax perks too. For starters, you can deduct business expenses from your taxable income. So, whether you’re delivering with Doordash or freelancing on Taskrabbit, business-related costs can help reduce your tax bill.

Of course, knowing which expenses are deductible is crucial, and it depends primarily on the nature of your gig work. For example, as a personal shopper, you may be able to include business mileage and supplies, like coolers for food, as your business expenses. The general rule is that these expenses must be essential and directly linked to your gig work.

Lastly, it’s worth noting that performing contracted work doesn’t always mean you have a contractor status. For example, if you’re a cleaner at a university but receive a paycheck from and get taxes deducted by a separate agency, you would not be considered a gig worker. You can’t deduct business expenses, and your work supplies are provided to you.

Tax deductions for gig workers

Deductions can be a game-changer for gig workers, significantly reducing their tax bill. Whether you’re a Lyft driver, Instacart shopper, dog-walker on Wag!, or do some other type of gig work, you can take advantage of these tax deductions. 

The IRS allows independent contractors to deduct business expenses associated with work from their self-employment income. These deductions lower the amount of income subject to tax, reducing your tax bill.

Some of the most common business deductions include work equipment, supplies, phone and internet bills, subscriptions, health insurance premiums, continuing education, and business mileage. 

Perhaps the most overlooked type of deductible expense is vehicle and travel-related.

Vehicle expenses

If you use your vehicle for gig work, you can get a tax deduction on most vehicle-related business expenses. 

There are two methods for claiming these expenses: the standard mileage deduction and the actual expense method.

The standard mileage deduction is more straightforward. It involves mileage tracking, limited recordkeeping, and a simple calculation. Most of the process can be automated with a mileage tracker, like the MileIQ app.

To calculate the deduction manually, you must multiply your business miles by the IRS standard mileage rate (67 cents per mile in 2024). 

For instance, if you drove 10,000 miles for business purposes in the 2024 tax year and used the standard mileage rate for that year (67 cents), you could deduct $6,700 from your taxable income (10,000 miles x $0.67).

On the other hand, the actual expense method allows you to deduct the true costs of using your vehicle for business. This includes expenses like:

• gas
• maintenance (including oil changes and fluid checks)
• repairs
• insurance
• depreciation

Remember, only the business-related portion of these expenses is deductible. That’s why drivers using the actual expense method still have to track mileage and report what percentage of the total was business-related. For example, if out of the 10,000 miles driven over a year, 5,000 were business miles, that results in 50% business use.

Since record keeping and business calculations can get fairly complex, most gig workers should consult with an accountant before committing to the actual expenses method.

Home office, internet, and smartphone

If you use a portion of your home exclusively for gig work, you may be able to claim the home office deduction. The caveat is that this space must be used for business purposes only. So, if you’re using your kitchen table as your office, unfortunately, you won’t qualify for the deduction.

The IRS has two methods for calculating the home office deduction: the simplified option and the regular method.

The simplified option allows you to deduct $5 per square foot of your home office with a limit of 300 square feet. 

On the other hand, the regular method involves calculating the actual expenses of your home office, such as:

• mortgage interest or rent
• insurance
• utilities
• depreciation

Then, you multiply these expenses by the percentage of your home used for generating business income. It works exactly like the actual expense method for calculating vehicle tax deductions. 

Gig workers can also deduct a part of their internet and phone bill — especially important if you get gigs via mobile apps. Just like with the home office deduction, you’ll need to calculate what percentage of your phone and internet use is for business purposes.

Health insurance premiums

Self-employed people usually need to get their own health insurance plan — but the good news is, you can get premiums deducted on taxes. Just keep in mind that there are certain income limitations, as well as other rules to follow. Review them carefully before adding expenses to your tax return and keep all premium invoices you receive from the insurance company. 

Claiming any deductions means you’ll need to keep track of all your expenses and have supporting documentation in case of an audit.

Keeping track of expenses

Maintaining accurate records of your expenses is necessary for maximizing your tax deductions as a gig worker and avoiding potential tax penalties. Good practices can make tax time a breeze and ensure you don’t miss out on any potential deductions.

Start by keeping all receipts related to your gig work. This includes receipts for supplies, equipment, phone and internet bills, and any other business expenses. If you’re claiming vehicle expenses, keep a mileage log that records each business trip's date, purpose, and distance, as well as parking and toll fees. If you’re using the MileIQ tracking app, it will store all that information for you.

Tax filing for gig workers

When filing taxes, gig workers have a few extra steps compared to traditional employees. As an independent contractor, you’ll need to report your income and expenses on Form 1040 and Schedule C. Form 1040 is the standard tax form for individuals, while Schedule C is used to report income or loss from a business.

Don’t forget, as a self employed gig worker, you are effectively managing your own business. So, you have a few additional forms to fill on your tax return:

• Form 1040: This is the main form used for individual income tax returns. You typically file a Form 1040 along with additional schedules related to your business income and expenses.
• Schedule C (Form 1040): Also known as "Profit or Loss from Business," on this form you report income or loss from a sole proprietorship or single-member LLC. It includes details of business income, expenses, and deductions.
• Schedule SE (Form 1040): Here, you calculate self-employment tax, including Social Security and Medicare taxes.

As you see, filing your taxes as a gig worker can be complex, especially if you have multiple gigs or substantial expenses. Thus, consulting with a tax professional before filing your first tax return as a gig worker is a great idea.