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Nipsey_X
Level 1

DoorDash Sole proprietorship

Hey So I'm 19 years old and I'm planning on next month going out for my full drivers  license and then starting my business as a sole proprietor, then getting a personal loan of $20,000 to purchase a hybrid car, to that i wont  have to finance and my insurance to be sky high and then  to be a full time doordasher. My question is will i be able to get the business use of vehicle tax write offs for section 179 were I read I can deduct up to $18,000 of the purchase price if it is used for 100 percent business use. Which I Plan to use it for 90 percent business and 10 percent personal is this the right way to go about this? because I know in my area the hours I would put in would average $1,000 a week easily.  Someone help and let me know if I'm going about this wrong. So my total expenses would be $650 a month with the loan and insurance and my current bills included. 

14 Replies
Critter-3
Level 15

DoorDash Sole proprietorship

Your question is contradictory. You’re either a sole proprietor or a corporation not both. Please contact a local income tax preparer  to get educated on which entity is best for you And how to handle the purchase of the vehicle.

Nipsey_X
Level 1

DoorDash Sole proprietorship

Sorry correction meant starting business as a sole proprietor 

Critter-3
Level 15

DoorDash Sole proprietorship

I highly recommend you do some reading to get educated on being a sole proprietor. As for vehicle deductions you will have several options based on your income & other expenses so there is no straight forward answer to give you that is why sitting down with a local pro or doing some reading before doing anything so you get it right the first time. 

About Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)

About Publication 463, Travel, Entertainment, Gift, and Car Expenses

About Publication 535, Business Expenses

Other Current Products

xmasbaby0
Level 15

DoorDash Sole proprietorship

@Nipsey_X You have some homework to do.   First, understand that the typical DoorDash delivery person is an independent contractor.   That means the IRS considers you to be self-employed.   DoorDash will not withhold any  tax from your pay, so you will be paying all of the Social Security and Medicare yourself as well as ordinary income tax.

 

Do some googling to see  how much the average DoorDash deliverer makes in your area----and how many hours they work to earn their incomes.  It can vary widely depending on where you are.   There are a number of sites you can find online with information about realistic income expectations for delivery driving, rideshare driving, etc.

 

When you say you will procure a "personal loan" what do you mean by that?   Is a family member loaning you money to buy a car?   

 

As for car insurance---have you done some research to see how much it will cost you to have insurance---especially if you are a delivery driver?   You say that you are about to get a driver's license----so your rates as a new driver may be higher than you anticipate.

 

If you go forward with your plans:

 

https://ttlc.intuit.com/questions/2903027-how-do-i-report-income-from-self-employment

 

https://ttlc.intuit.com/community/self-employed/help/what-is-the-self-employment-tax/00/25922

 

https://ttlc.intuit.com/questions/2902389-why-am-i-paying-self-employment-tax

 

 

https://ttlc.intuit.com/questions/1901340-where-do-i-enter-schedule-c

 

https://ttlc.intuit.com/questions/3398950-what-self-employed-expenses-can-i-deduct

 

https://ttlc.intuit.com/questions/1901110-do-i-need-to-make-estimated-tax-payments-to-the-irs

 

 

Do some research---then good luck with your plans!

 

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**
Nipsey_X
Level 1

DoorDash Sole proprietorship

Very good questions first off yes I've done plenty of research in my area I've dashed before with friends in family all over my area so I'm pretty familiar with what to do and were to go so and about average as of right now I dash with my friend from time to time for about 2 hours and he makes about 60 every 2 to 3 hours so yes, I'm not worried about being able to make enough money because  I know I will even on slow days in my area $100 a day is guaranteed if you put in the right hours and yes I've been looking at quotes from AAA progressive state farm all state and the lowest coverage would be $140 from AAA and by loan I would get a personal  loan from a lender for business use and  I've already got accepted  from my lender for my $20,000. 

AmeliesUncle
Level 13

DoorDash Sole proprietorship


@Nipsey_X wrote:

$20,000 to purchase a hybrid car ... My question is will i be able to get the business use of vehicle tax write offs for section 179 


 

 

Yes, but that might not be the best long-term method.  If you use Section 179 (or the Special Depreciation Allowance), you must continue to use the Actual Expenses for the rest of the time you own that vehicle.  

 

As a GENERAL rule, an economical vehicle with high business miles benefits from using the Standard Mileage Rate over the long-term.  But you can ONLY use the Standard Mileage Rate if you use it in the first year (and therefore NOT use Section 179).

 

As a side note .. you mentioned car insurance a couple of times.   Tell the insurance company about your DoorDash business and that 90% of the vehicle usage will be used for that.  In many cases, your regular insurance will NOT cover you if you are driving for business, and you would also need to purchase a commercial vehicle policy.  But that is something that you need to discuss with the insurance agents.

Nipsey_X
Level 1

DoorDash Sole proprietorship

So let me get this straight you can't use the business deduction and the standard mileage rate together? You can only pick one and I understand what you mean by picking the mileage rate more because the more miles the more I get back but wouldn't depreciating more then half the vehicles price on my taxes be more beneficial financially then 56 cents per mile? 

bcarlson
Level 2

DoorDash Sole proprietorship

Congratulations!  You sound committed, focused, and you've done a little homework on it, already.

Regarding insurance, take a look at this link.  It seems to cover all the bases:

https://entrecourier.com/delivery/delivery-business/insurance/doordash-and-car-insurance-are-you-ins...

Whether you are simply a sole-proprietor or a single member LLC, the result on your tax return will be the same.  You will show income received and all related expenses on a schedule C of your tax return.  If you use Turbo Tax, it will automatically take out the required 15.3% for social security and medicare, computed on the end of year income (revenue less expenses) that you'll show on your schedule C .  That amount will transfer to your 1040 tax return and be added to any other income tax you may have incurred.

The only advantage to an LLC is the perceived advantage of being personally protected (financially) in the case of a liability lawsuit against you.  A single member LLC is easy to form, though depending on the state, you're usually required to register with a modest fee, at least upon inception.  Due to the limited protection it may offer, you might want to start out as a sole proprietor, which involves no extra work, and no filing requirements with the state.  If things get really successful in subsequent years, you can always crank up an LLC later, at any time.

Either way, it is imperative that you maintain accurate bookkeeping records of all business transactions.  You should set up a separate business checking account to help segregate your business and personal expenses.

You are right about the 179 write off of a business auto.  However, the limit on a personal vehicle for immediate write off was $10,200 last year.  That's the most you can take in the first year under Sec 179.  You can, however, continue to depreciate the balance in future years based on the standard depreciation tables.  All of those numbers will be reduced by 90%, if that is the estimated business use.  However, and this is a big HOWEVER, you need to keep accurate records of the actual mileage used personally and for business.  The records must be kept "contemporaneously", that is, you keep a daily journal to record mileage at the start, and at the end, of each day, along with mileage used personally.  You can't just "claim" 90% and be done with it.  Typically, by the end of a full year, the results of your record keeping may show that personal use was only 8% or was a higher 12%.  The recording of actual auto use is what produces the true year end percentage - not the other way around!  Check out battery powered as well, since Federal credits have been around $7,500 per car.

Finally, as a profitable sole proprietor, you will need to make estimated payments quarterly, since you will be classified as a contractor.  If you were actually employed by DoorDash, you would have Fed and State (and maybe city) taxes automatically withheld from your weekly paycheck.  But, as a contractor, it's your responsibility to pay these accumulated taxes to the Fed, State (and maybe city) agencies on a quarterly basis. 

So....bottom line:  Let's say after 3 months you're earned $13K in revenue and incurred $3K in expenses.  That's a $10K profit!  But, don't put all of that in your pocket!  Whenever you’re successful, the IRS and the state wants to be your partner.  I don’t know what your non-business income is and I don’t know what state you are in, but I advise that you pull 25% out of your monthly earnings and put it in a separate account, so that, by the end of the quarter, you have enough to make the required quarterly estimated payments to both the Feds and the State.  If you’ve put 25% in a separate account, each month, you’ll have enough, by the end of the quarter, to send $2,100 to the IRS and $900 to the State.  That might be more than you need to pay, but worse case, you’ve over estimated your quarterly payments and by year end, you’ll qualify for a refund which you can keep or apply to the first quarter of the next year.

And one final thought:  make sure you are fully aware of any city taxes, requirements, or business licensing.  Best of luck to you in this exciting new venture!

 

 

 

 

 

 

AmeliesUncle
Level 13

DoorDash Sole proprietorship


@Nipsey_X wrote:

So let me get this straight you can't use the business deduction and the standard mileage rate together? You can only pick one and I understand what you mean by picking the mileage rate more because the more miles the more I get back but wouldn't depreciating more then half the vehicles price on my taxes be more beneficial financially then 56 cents per mile? 


 

You have the option to use (a) Actual Expenses or (b) the Standard Mileage Rate.  Not both.

 

Using Section 179 (or the special depreciation allowance or regular depreciation) is part of Actual Expenses.

 

The Standard Mileage Rate has depreciation built-in to it.  For 2021, that is 26 cents per mile.  The remainder portion of the 56 cents per mile is based on the average cost for gas, repairs, insurance, etc., but in many circumstances a gas-conservative vehicle costs noticeably less than that (which means you would be receiving a 'extra' deduction versus your actual out-of-pocket cost).

Let's say you drive 25,000 miles per year for DoorDash (my brother-in-law drives over 70,000 miles a year for Uber).  You mentioned the vehicle costing about $20,000.  If you used the Actual Expenses, over 5 years you would have depreciated the vehicle cost of $20,000.  If you used the Standard Mileage Rate, you would have depreciated $32,500 (26 cents multiplied by 25,000 miles a year, multiplied by 5 years).  So in that scenario, you have benefited by receiving an "extra" $12,500 in deductions.

Nipsey_X
Level 1

DoorDash Sole proprietorship

Wait its only 26 cents per business mile or 56 cents? Cause in that case I'd go with mileage rate because I know for a fact with my work ethic I could see some big numbers for write offs on my taxes. Just a hypothecial if I did purchase let's say a honda accord hybrid with 10k miles for $22k and I drove 27,000 miles in a year for business and about 1,000 for personal use how much would I be able to write off in my first year with $600 for gas $2,200 for insurance and $1200 on oil changes and etc

AmeliesUncle
Level 13

DoorDash Sole proprietorship

Using super simplified numbers, and for simplicity if we say it was 100% business use and 27,000 business miles every year:

 

Actual Expenses:

 

Year 1:  Total deduction of $22,000

Year 2, 3, 4 and 5: Total deduction of $5,000 per year

Year 6 and after:  Total deduction of $4,000 per year

 

Standard Mileage Rate:  $15,000 deduction EVERY year

 

 

Again, this is just a super simplified example, but it shows how the Standard Mileage Rate can be very beneficial for vehicle with high business miles.

bcarlson
Level 2

DoorDash Sole proprietorship

Nipsey,

You've been getting some good advice and suggestions regarding the standard mileage vs actual expenses decision.  Let me add one extremely helpful resource, which is actually contained in the TurboTax.Intuit website. As you've already realized, there is no one preferred method, because of the many variables, not the least of which is: if you pick the actual expenses method, you're stuck with it for all subsequent years.  If you pick the standard mileage method you can switch back and forth between methods in all subsequent years.

You owe it to yourself to click on this link and read it all.  It has a helpful outline and a good example and it's right next door!

https://turbotax.intuit.com/tax-tips/self-employment-taxes/standard-mileage-vs-actual-expenses-getti...

Nipsey_X
Level 1

DoorDash Sole proprietorship

So is it even worth it to start my business as a sole proprietor if I can still get business write offs? 

AmeliesUncle
Level 13

DoorDash Sole proprietorship

A single owner of a non-corporate business *IS* a Sole Proprietor.  So if you have the business, there is nothing to "start" to be a Sole Proprietor.

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