More and more car owners are sharing their vehicles as a way to earn extra cash and offset the costs of owning a car using car-sharing apps like Getaround and Zipcar. Similar to Airbnb's business model, except you can rent out your car to strangers, instead of your home. As a car owner in the peer-to-peer car sharing business, you're also a small business owner for tax reporting purposes. This means you can deduct business-related costs, such as everyday auto expenses. Certain rules and limits apply to the amount and types of deductions you can take, so keep track of your income and expenses.
Declare Your Car Share Cash
Keep track of the money you earn from renting your personal vehicle. The car sharing company you use, such as Getaround or Zipcar may send you Form 1099-MISC soon after the tax year ends.
Expect to receive this form in the mail if you earned $600 or more for the 2020 tax year from your car-sharing business. The car-share company also reports your income to the IRS. Even if you don't receive a 1099 Form, you still have to report to the IRS any income you earned.
Tax Deductions Reduce Your Taxable Income
A tax deduction reduces your taxable income, helping to lower your tax bill and increase your tax refund. Keep precise receipts and mileage logs for your car. These records help you to declare expenses on Schedule C.
You're allowed to deduct most auto-related costs connected to your car-sharing business, including:
- Car interest payments
- Parking garage fees
- Maintenance and repairs
- Service plans
- Car washes
- Car-share equipment and setup fees
Calculating Car Share Expenses
If you use your car for personal reasons in addition to your car-sharing business, you can only deduct expenses related to its business use. For example, if your car was used for car-sharing on 186 days out of the year—or 50% of the time. That means you can deduct 50% of the total amount of your expenses. But you can deduct 100% of expenses that are exclusive to car-sharing, such as car-share setup costs.
Say you have a total of $2,500 in deductions related to car-sharing. In addition, you spent $500 to install car-share hardware that allows renters to open the vehicle. Your deduction calculation would be:
- $2,500 + $500 = $3,000 is the deduction you can claim.
Tallying Your Taxable Income
To determine your taxable income, subtract your total deductions from the amount of income earned through car-sharing. Refer to your 1099 Form for this figure or your own records of car share earnings.
For instance, if you earned $7,000 in car-share income for the year and have $3,000 in deductions then your self-employment income would be:
- $7,000 - $3,000 = $4,000 taxable income
No Holding Back
Car-sharing companies don't typically withhold money from your earnings to cover income taxes because car owners are not employees. Through withholding, employees can have peace of mind knowing they've already paid all or most of their taxes by the filing deadline.
As a car-share driver, you can pay-as-you-go to avoid being hit with a large tax bill at tax time. Pay your taxes throughout the year by figuring your estimated tax payments and sending payments to the IRS every quarter. Use Form 1040-ES to figure and pay estimated taxes, or use TaxCaster free tax calculator.
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