You have to pay taxes when you run a business, even if you’re a Turo host. Fortunately, you can deduct your operating expenses to reduce your tax bill. Track and report every dollar you spend so you get credit a tax time. These write-offs are very helpful when it comes time to pay the IRS. Turo car rental hosts and other peer-to-peer fleet operators can recoup a lot of their expenses with these deductions.
Turo Car Rental: Tax Write Off Basics
Rental hosts naturally incur expenses as they run their businesses. Deductible costs include oil changes, insurance, parking fees, and more. You need to track these costs so you can claim them on your taxes. Claiming these deductions helps lower your taxable income and reduces your tax bill. Don’t overpay on taxes, track your expenses carefully to ensure you’re getting the best deal at tax time.
Tax deductions work to lower your taxable income. Business expenses that are deemed ordinary and necessary to your business may be written off or deducted from your taxable income. By lowering your taxable income, you effectively and legitimately can lower your tax bill.
Business vs. Personal Use
Business expenses are completely tax-deductible. However, you have to split the costs if you use the vehicle for both business and personal use. First, you need to know the exact percentage of business versus personal use. Then, you use that ratio to prorate your expenses. Only the business portion is deductible. Using a mileage tracker can help you calculate the percentage of business use.
Standard Mileage Deduction
The standard mileage deduction is the easiest method for writing-off vehicle expenses. This method allows you to deduct a set rate for every business mile you drive. The rate varies every year, but it’s $0.58 per mile in 2020. If you use the standard mileage deduction, you can’t deduct actual expenses, so this isn’t the best method in every circumstance. You need to do some research to determine whether or not the standard mileage deduction is right for you.
Cost Basis Deductions
For Turo car rental owners, the standard mileage deduction may not be the most advantageous way to go. The larger your operation, the more costs you will incur, which means your expenses could be greater than what the standard mileage deduction allows. In this instance, you will want to account for all of your expenses. Some common expenses for peer to peer car rental owners include:
Maintenance
Ongoing maintenance expenses like oil changes and car washes are not only good for your vehicle and make your vehicle more appealing to renters, but these expenses qualify as a deductible expense.
Repairs
Every now and then you may find yourself having to make repairs on your vehicle. For example, if a rock hits your windshield while it is rented out, and you paid to replace the windshield, this cost would be deductible.
Insurance
The law says you have to have insurance for your vehicle. Turo also requires insurance on all rentals. In some cases, Turo requires an upgraded insurance policy in order to rent on the platform. Many insurance companies don’t allow owners to rent their vehicles on peer-to-peer car-sharing sites. Fortunately, you can deduct insurance costs.
Registration
In order to list your vehicle on sites like Turo, your vehicle must be compliant with the local laws in your area. This means maintaining a proper vehicle registration, which varies from state to state. However, this is a tax-deductible business expense.
Tolls
Tolls can add up. However, they’re a deductible business expense, so you can write them off.
Garage Fees
In many urban areas, you have to pay for parking. If you pay to garage your vehicle, you can deduct this cost.
Business Deductions
In addition to the vehicle expenses listed above, you may also incur other expenses while operating your vehicle. Consider expenses like marketing, processing fees, travel expenses, business meals, home office, office supplies, and more. In addition, any service fees paid to sites like Turo are also deductible.
Vehicle Depreciation
You also have the option to depreciate your vehicle. Depreciation allows you to spread out the tax advantage of purchasing your vehicle over its useful life, which is usually 5 years. This prevents you from overstaying your expense at the time of purchase and understating it in the future. For example, if you purchased a new vehicle for $30,000 and determined that its useful life was 5 years, you would be able to depreciate $6,000 per year. Please note that this only applies to vehicles that are purchased, a lease does not qualify. Check out the IRS guide to depreciation property here.
See our complete vehicle depreciation guide to learn more.
More Turo Tax Help
Taxes can be complicated, especially when tax laws are being updated and changed constantly. To make sure you are taking advantage of all of the tax deductions available to you, you should meet with your tax advisor. Get started today with a free one-on-one strategy session. You can also subscribe to our newsletter using the form below for more tax tips.