undefined | Better HN

0 pointssowbug2y ago0 comments

The marginal federal tax rate for someone making $50,000 is 12%. So every dollar spent on gas (or whatever other deductible expenses) would lower federal taxes by 12 cents.

But I'd be surprised if many drivers grossed more than $50K/year. If they earn less, the tax benefit of deductibility is even smaller.

0 comments

Sai_2y ago

Personal income tax and the tax treatment of businesses are different - as a business, you’d earn some revenue from doordash while showing some expense (like gas, insurance premiums, and your salary). Your company would then pay tax on the net and you’d pay tax on the salary you give yourself from your company.

Not a CPA so I’m pretty sure I’m oversimplifying this and there are lower bounds I don’t know about which prevent most gig workers from operating like this.

sowbugOP2y ago

I think we're in agreement, because I'm assuming serious DoorDash drivers file Schedule C, which is the practical equivalent of dividing your life into personal and business sections but without the paperwork (or benefit) of incorporating.

My comment was motivated by OP's question asking whether it was possible to "offset these expenses against their tax" (emphasis added). No, it's not possible to offset an expense against tax. It's only possible to offset against income. I frequently see people on HN saying things like "it doesn't matter if it's a ripoff because it's a tax writeoff!!!" If they actually look at their tax returns, they are surprised that an expensed dollar saves them only 10-20 cents, so the price definitely does matter.

Tax credits, on the other hand, are a lot closer to what people are usually thinking of when they say tax expense. If you install residential solar in the US in 2023, for example, you get a 30% tax credit. That means if you spend $10,000, your federal tax bill goes down by $3,000. If it were merely 30% deductible, then you'd subtract $3,000 from your income, which at a Doordash driver's tax bracket would reduce taxes by only about $350.

(I'm not a CPA, either, as any CPA can surely tell.)