Turo hosting is a great way to generate extra income from your vehicles, but the money you earn on the platform is taxable. Whether you’re new to Turo or an experienced fleet owner, Turo taxes can quickly become complicated, so it’s best to stay ahead of the curve. Our Turo tax guide will help you prepare your business for tax time and maximize your tax savings.
Top Tax Considerations for Turo Hosts
If you rent out one or more of your vehicles with Turo, the money you earn is taxable income. You can, however, significantly reduce your taxable income by deducting some of your expenses, which can include everything from marketing costs to depreciation. Regardless of how often you rent out your vehicle, you’ll likely need to file as a self-employed individual.
To be classified as a Turo fleet owner by the IRS, you must rent out five or more vehicles. If you’re a fleet owner, your tax-filing situation may be slightly different. Whether you rent out one or eight vehicles, you’ll effectively be the owner of a business, which means that you’re directly responsible for reporting your annual earnings and paying taxes.
If you use Turo services to rent out your vehicle and make more than $600 in a year, you’ll receive Form 1099-K. When you report your income and deduct expenses, you’ll need to calculate your costs using either the standard mileage rate or the actual expenses method. Fleet owners are required to use the actual expenses method.
The only way to significantly reduce your taxable income via deductions is by keeping thorough records of your expenses. You should also be able to record the exact amount of income you earned during the year. If you don’t maintain strict records, the IRS could perform an audit, which can be time-consuming.
Navigating Turo Tax Deductions
As a Turo host, you may have access to many useful deductions that can lower your taxable income. These deductions include everything from insurance and maintenance to depreciation. Any expense that relates to your car rental business is tax-deductible. Let’s say that you’ve earned around $15,000 with Turo and have $2,000 in expenses. If you write off $2,000 from the gross income you’ve earned, you’ll only need to pay taxes on $13,000.
The IRS views any expense that’s necessary and ordinary as a write-off. For example, if you buy a Sirius XM subscription to include in your rental cars, you can write off the annual costs. Many people who rent vehicles expect this type of subscription, which means that it’s necessary for your business. In comparison, the clothes you’re wearing when you perform administrative tasks for your vehicles can’t be written off. The various types of expenses you can write off include the following:
- Business meals for Turo referrals
- Marketing costs
- Some of your internet and cell phone bills
- Snacks and water you place in the vehicle
- Turo marketplace fees
You can only deduct the portions of your cell phone and internet bills that are used specifically for business-related purposes. If you want to make the filing process less complicated, make sure to track all your expenses during the year. Otherwise, you’ll be tasked with sorting through bank statements and bills to find proof of your expenses at tax time.
The simplest method for tracking your expenses involves specialized software. There are many apps that offer this functionality, which include options like Stride, Keeper Tax, and Expensify.
Depreciation for Turo Vehicles
Depreciation occurs when an item loses some or all of its value over time. All vehicles and homes depreciate. One of the most useful tax benefits available to Turo hosts is vehicle depreciation.
When calculating the business use of your vehicle, identify how many miles your car was driven for business-related reasons. The basis of your vehicle refers to its purchase price as well as registration and recording fees. When calculating the recovery period, this represents the total number of years over which you’ll claim a depreciation expense. The recovery period for vehicles is usually five years, which is deducted over six consecutive tax returns.
Let’s say that you purchase a vehicle and start renting it out in the same year. Depreciation will begin during the first year and last until the sixth. Likely the most popular depreciation method for tax purposes is the Modified Accelerated Cost Recovery System (MACRS). With this method, you can claim depreciation at an accelerated rate, which means that your deduction would be higher in the first few years.
When considering the depreciation convention, there are two options to select from, which include half-year and mid-quarter.
Should Turo Fleets Use Standard Mileage or Actual Expense?
The two methods you can use to deduct expenses on your annual tax return include standard mileage and actual expenses. As mentioned previously, anyone who owns a Turo fleet of five or more vehicles needs to use the actual expenses method. The actual expenses technique involves adding up all the money you paid on your vehicle during the year. Multiply these total costs by business-use percentage.
If you use your vehicle for personal reasons around 60% of the time, you could claim a deduction on around 40% of your expenses. In the event that you paid around $10,000 on expenses like gas, oil, car insurance, repairs, and vehicle depreciation, you could claim $4,000 with the actual expenses method.
The standard mileage method requires you to keep track of the specific number of miles your vehicle was driven for business-related reasons during the year. You’re able to claim a dollar amount for each mile. In 2024, it’s possible to claim $0.67 per mile, which is up from $0.63 in 2023. You can also use this method to write off additional expenses like DMV and parking fees. Track mileage with an app that allows you to make precise recordings.
Taxes on Turo Income
When you work as a Turo host, you can file self-employment taxes and claim deductions if you materially participated in your car-rental business. It’s possible to claim that your work is passive, which means that you won’t be subject to self-employment taxes. However, this would also do away with business write-offs. If you’re the only person involved with renting out your vehicle, this means that you’re materially participating in your business.
Since you’re counted as a sole proprietor, you’ll need to pay self-employment tax alongside state and federal income taxes. The self-employment tax is part of FICA, which funds Social Security and Medicare programs. Since you don’t have an employer who automatically deducts these taxes from your paychecks, you must do so on your tax return. You end up paying the employer and employee portions, which add up to 15.3%. It’s possible, however, to write off the entire employer portion of this tax.
As for the state and federal income taxes, the percentage can range from 10-37%. State taxes differ with each location. Places like Alaska, Florida, Texas, and Washington don’t charge income tax. If you expect to owe more than $1,000 on your annual tax return, you’ll need to pay quarterly taxes. Quarterly taxes should be paid on April 15, June 15, September 15, and January 15 each year.
Staying Updated with Tax Law Changes
If you’re a Turo fleet owner, it’s highly recommended that you remain informed about tax law changes. Over the past five years, legislative attitudes about sharing economy industries have been changing. In fact, companies like Uber and Airbnb have already been impacted by these shifts. Turo hosts may eventually be affected as well. By staying informed, you can avoid running into issues. It’s your responsibility to remain in compliance.
Turo Tax Guide: Closing Thoughts
Turo fleet owners usually need to file as self-employed individuals. While self-employment taxes can be high, there are also many deductions you can take advantage of. To ensure you obtain the maximum deduction on your taxable income, be proactive. Work closely with an accountant or CPA who can help you fill out your return and avoid an audit. Make sure you keep exhaustive records of your expenses and income as well.
Shared Economy Tax specializes in tax strategies for fleet owners and other small businesses. Our tax pros have extensive experience helping Turo hosts rack up huge tax savings, year after year. Get started with a one-on-one strategy session with a tax pro to see how much you can save!
