Tax question.

[mailbagman]

Tax question: I am considering taking a job delivering for Door Dash. Door Dash and Grubhub and others do not take out any tax's. It is your responsibility at the end of the year to pay them. You get a 1099-NEC at the end of the year.

So my question is as follows. If I put every cent I end from Door Dash into my IRA will I avoid paying federal inmate tax's that way? Of course I will have to pay when I take out form my IRA. But my letting the money grow I will actually be earning the money I have to pay Uncle Joe.

 

[Dash man]

Well, you can reduce your income tax bill if you contribute to a traditional IRA, but I’d expect you still have to pay payroll taxes.

 

[RetireBy90]

I would expect you still have to pay SS and Medicare for the income amount, both employee and employer parts.

 

[CaliKid]

Tax question: I am considering taking a job delivering for Door Dash. Door Dash and Grubhub and others do not take out any tax's. It is your responsibility at the end of the year to pay them. You get a 1099-NEC at the end of the year.

So my question is as follows. If I put every cent I end from Door Dash into my IRA will I avoid paying federal inmate tax's that way? Of course I will have to pay when I take out form my IRA. But my letting the money grow I will actually be earning the money I have to pay Uncle Joe.

I believe you put the gross amount into your IRA (up to IRA limits of course). Plus, I believe, you can deduct your business expenses. I think you can deduct your mileage at 57 cents (or some such number) plus other necessary business expenses. For example, it seems to me, if you had to buy a better smart phone you could deduct it or at least a portion of that cost plus part of the monthly!? Maybe you bought some work shoes!? Work with a tax pro to make sure you don't do anything wrong. Good luck!

 

[cathy63]

It's more complicated than just paying self-employment tax, and I am not sure if you can legally put every penny you earn into an IRA, even if it's below the contribution limit.

- You must report all the expenses associated with your business on Schedule C. For a GrubHub driver, this might only be mileage.
- The SE tax is calculated on the net earnings from your work. Half the SE tax is deductible.
- The maximum deductible IRA contribution is the net earnings minus the deductible portion of SE tax, or $6000 ($7000 if over age 50), whichever is lower.

Let's say you earn $5500 driving for GrubHub and you have exactly $500 in expenses, making your net earnings $5500-$500=$5000.

Your self-employment tax is going to be approx $750, of which half, or approx $375 is deductible.

Your maximum deductible IRA contribution is then $5000-$375=$4625. If you make a contribution greater than that, the excess would definitely not be deductible. The part I don't know is whether you could still go ahead and contribute up to $5000 or up to $5500 and just have a basis in your IRA. I'm guessing you could go up to $5000 but not up to the full $5500, but I didn't look for the IRS pubs to confirm that.

I would recommend that you not make any IRA contributions until you do your tax return next year. Figure the max deductible contribution and put that amount in your IRA just before finalizing your return.

 

[SecondCor521]

^ @cathy63 I thought it was the maximum IRA contribution was net SE earnings minus half SE taxes. So in your example, OP could contribute only $4625 and anything beyond that would be an excess contribution subject to 6% excise if not removed.

IOW, remove the word "deductible" from your third bullet point to be correct.

I could be wrong, though.

 

[cathy63]

^ @cathy63 I thought it was the maximum IRA contribution was net SE earnings minus half SE taxes. So in your example, OP could contribute only $4625 and anything beyond that would be an excess contribution subject to 6% excise if not removed.

IOW, remove the word "deductible" from your third bullet point to be correct.

I could be wrong, though.

Yes, I stuck the numbers in TTax and you are right. The "max deductible IRA contribution" and the "max IRA contribution" are the same in this situation. You cannot make a non-deductible IRA contribution to cover the remainder of the earnings that were used to pay the deductible part of the SE tax. (I am assuming that neither OP nor OP's spouse has a W-2 job with a retirement plan. If they do, then the other IRA deduction limitations come into play.)

 

[Sunset]

OP - I think you will NOT make any money doing it. Because you will have extra wear & tear on the car and extra insurance costs (remember to up your liability, because if you hit someone/something they will sue a ton thinking GrubHub will foot the bill).

If you do it, at least open a self 401K plan, so you can double up on your retirement savings locations, and the upper limit is around $54,000 /yr.

 

[Koolau]

Heh, heh, get a "real" j*b instead! It's a lot simpler and probably will pay better. But that's just my thinking so do what you think is right for you since YMMV.

 

[DayDreaming]

Many of us old folks are worried about having too much in the IRA, and having very high taxes when RMDs hit. I don't know your situation, but is putting that extra income into your IRA now really saving you anything? - Just something to consider.

 

[target2019]

Since you're using the auto for business, your auto insurance company would want to know.

 

[bingybear]

Since you're using the auto for business, your auto insurance company would want to know.

I would not put it that way. The OP will need a commercial insurance or rider.

The OP is the company

 

[mailbagman]

Yes, I stuck the numbers in TTax and you are right. The "max deductible IRA contribution" and the "max IRA contribution" are the same in this situation. You cannot make a non-deductible IRA contribution to cover the remainder of the earnings that were used to pay the deductible part of the SE tax. (I am assuming that neither OP nor OP's spouse has a W-2 job with a retirement plan. If they do, then the other IRA deduction limitations come into play.)

Thanks everyone for your helpful in-site to this idea. How that all of you have pointed out things to me I honestly don't want to go through all the trouble with the tax situation even though I do use Turbo Tax.

That is also why I stopped investing in MLP's 5 years ago. I hate waiting for the late paperwork arriving and delaying my return.