TRIP
Iceland is a fairly expensive place to go to, so we got a six day five night deal on the car and housing. Housing was guesthouses or cabins on farms. Four of the farms were a mile off the ring road, road “1”. Ours was not a birding trip, but birds were everywhere. You could book the farm holidays at www. Farmholidays.is and arrange for the birding. Or you could bring a tent and sleeping bag and camp, but I recommend June or July for that. The roads were narrow with no shoulder in the eastern half, so it was a problem to break for every bird. The Western half is good for roads but more traffic. So you could head to the central west, then swing NE to Akureyri and Myvatn (a must for birders May to Aug) then return the same way.
For those that know the geography, our five stops were, after car pick up at Keflavik airport, Hvolsvöllur, before Höfn, Egilsstadir, Myvatn, Budardalur and return of the car to Reykjavik. This requires 4-5 hours driving every day. Some of the ring road (road1) is gravel, especial at tops of passes. The driving is doable, though some hazards are present. In the East, few cars will pass you, as there is little traffic and almost no trucks.
So if you planned birding, there is plenty of time in a day as there is some 16 hours of daylight even in early August. Three people could manage it in the small rental cars you can afford, but bring soft luggage, easy to stuff into the car. I had no scope, just a tiny video camera with a zoom lens and a monopod. It takes stills.
Birds spotted, in the order seen on this counterclockwise ring trip:
Day 1
Meadow Pipit
Arctic Skua
Whimbrel
Raven
Great Black Backed Gull
Dunlin
White Wagtail
Oyster Catcher..they are everywhere in towns
Arctic Tern
Day 2
Common Snipe
Redwing..they are also everywhere
Mew Gull-Common Gull..they nest off road 1on left before Myrdalsjökull glacier
Black Headed Gull
Whooper Swan
Great Skua..nest on south coast
Puffin..near Vik
Common Loon
Day 3
Golden Plover
Red Phalarope
Graylag Goose
Day 4 (arriving at Egilsstadir, spotted evening and AM, to Myvatn)
Common Redshank
Red Necked Loon..in fjord just North of Egilstadir
Long Tailed Duck
(Greater) Scaup
Barrow’s Goldeneye (Myvatn, females and young only in Aug)
Snow Bunting (volcano parking lot before Myvatn)
Red N. Phalarope
Day 5
Lesser Black Backed Gull
Dunlin
Common Eider
Common Loon
Day 6
Greater Black Backed Gull
Kittiwake..nesting colony in harbor area of Stykkisholmur
(birding boat trips from Stykkisholmur will let you see white tailed eagle, 3 hour trip)
Black Guillemot
Reykjavik..(incl. bay whale tour)
Starling
Rock Dove
Gannett
Kittiwake
Puffin
Arctic Tern
Lesser Black Backed Gull
Mallard
Red N. Phalarope
I enjoyed the trip with my family, and the birding was very casual. The birds were practically shoved in my face and there was minimal work to do for this list. Only in Myvatn I made a special detour to go around the west end of the lake as well, for birds. And stop at the Laxa river. You can stop where you see people fishing, but otherwise access to rivers was difficult. Or I did not see the way in. Landowners will give fishing permits, so you can ask them about birding. We drove to a farmer and asked to see seals on the rocks of his property and he let us. Friendly people at least outside the capitol. They have to co-operate, to survive in this harsh land.
I have only posted a few gulls so far in my gallery. Many of my pictures show nesting so it will need careful posting. It's not like these nesting gulls don't see a hundred tourists every day.
A picture from my gallery.
Also, sheep:

Seems to have been a very nice tour. There are much more ducks to see in June than July. Unfortunately, you get frequently attaqued by Skuas and arctic terns in June...
As the fishermen at the Laxa river at Myvatn are paying a real fortune for their permits, they are seldom happy when they see some disturbing tourists. The Laxa river is one of the most expensive rivers to fish. I can hardly believe our guide which told us that the permit for a single day costs easily more than USD 1000.-.