How to Report Turo Income on Taxes Properly

Renting out your car on Turo can generate extra income, but it also comes with tax obligations. The IRS considers this income taxable, and improper reporting can lead to penalties or missed deductions. Understanding how to report earnings, claim deductions, and maintain accurate records is essential for compliance and maximizing tax benefits.

Classification of Turo Income

Income from Turo rentals is classified as business income rather than passive rental income. Unlike real estate rentals, car-sharing requires active management, such as handling bookings, coordinating vehicle handoffs, and maintaining the car. This level of involvement makes the income subject to self-employment tax, similar to earnings from rideshare driving.

The IRS distinguishes between hobby income and business income based on factors like profitability and effort. If a host rents out a car with the intent to make a profit and operates regularly, it qualifies as a business. This classification allows for a wider range of deductions compared to hobby income, which limits deductions to the amount earned.

Frequent Turo hosts or those with multiple vehicles may be considered to be running a trade or business under IRS guidelines. This distinction affects tax reporting and deductions. If operating under an LLC or another business structure, tax treatment may vary based on the entity’s classification.

Reporting Income on Tax Forms

Turo earnings must be reported to the IRS, typically on Schedule C of Form 1040. Some hosts may receive Form 1099-K, which details transactions processed through third-party payment networks.

Form 1099-K

Turo issues Form 1099-K to hosts who meet transaction thresholds. As of 2024, third-party payment processors must issue a 1099-K if a taxpayer receives over $20,000 in payments and has more than 200 transactions in a calendar year. Some states require a 1099-K for earnings over $600, regardless of transaction count.

The 1099-K reports gross payments before deductions like Turo’s commission or service fees. As a result, the income reported may exceed actual bank deposits. When filing taxes, hosts must reconcile the gross income reported on the 1099-K with their actual earnings by deducting allowable business expenses on Schedule C. Underreporting the 1099-K amount can trigger an IRS audit or penalties.

Schedule C Requirements

Since Turo income is business income, it is reported on Schedule C (Profit or Loss from Business) of Form 1040. This form allows hosts to declare gross earnings and deduct business expenses, reducing taxable income. The net profit from Schedule C is then included in total income on Form 1040.

Schedule C requires details such as business name (if applicable), principal business activity (e.g., “Car Rental” under NAICS code 532111), and total revenue. Expenses like depreciation, insurance, and maintenance should be itemized. Hosts with multiple vehicles need to track income and expenses separately for each car to ensure accurate reporting.

Errors on Schedule C can lead to IRS scrutiny, and incorrect expense reporting may result in higher tax liability. Keeping detailed records of transactions, receipts, and mileage logs helps support deductions in case of an audit.

Self-Employment Tax

Because Turo income is business income, it is subject to self-employment tax, which covers Social Security and Medicare contributions. Unlike traditional employees, self-employed individuals must calculate and pay these taxes directly.

For 2024, the self-employment tax rate is 15.3%, including 12.4% for Social Security (on earnings up to $168,600) and 2.9% for Medicare. If net earnings exceed $200,000 for single filers or $250,000 for married couples filing jointly, an additional 0.9% Medicare surtax applies. The self-employment tax is calculated on Schedule SE based on net profit from Schedule C.

Self-employed individuals can deduct half of their self-employment tax when calculating adjusted gross income. This deduction lowers taxable income but does not reduce the actual tax owed. Since self-employment tax is not withheld throughout the year, estimated tax payments may be necessary to avoid penalties.

Deductible Vehicle-Related Expenses

Turo hosts can lower taxable income by deducting eligible vehicle-related expenses. The IRS allows deductions for costs directly associated with operating a car rental business, provided they are ordinary and necessary.

Mileage Expenses

The IRS offers two methods for deducting vehicle costs: the standard mileage rate and the actual expense method. For 2024, the standard mileage rate is 67 cents per mile driven for business purposes. This method simplifies recordkeeping, as hosts only need to track business miles and multiply them by the IRS rate. However, it cannot be used if the actual expense method was previously claimed for the same vehicle using depreciation under the Modified Accelerated Cost Recovery System (MACRS).

Alternatively, the actual expense method allows hosts to deduct a percentage of total vehicle costs, including fuel, maintenance, insurance, and registration fees. The deductible portion is based on the percentage of miles driven for Turo rentals versus total miles driven during the year.

Depreciation

Vehicles lose value over time, and the IRS allows depreciation deductions. Most hosts will use MACRS, which provides accelerated depreciation over five years. The 200% declining balance method is commonly used, meaning larger deductions occur in the early years.

The Section 179 deduction allows immediate expensing of up to $1,220,000 in 2024 for qualifying business assets, including vehicles, but it cannot exceed taxable income. The bonus depreciation provision, which previously allowed 100% expensing, has been reduced to 60% in 2024 and will continue to phase out in future years.

Other Allowable Deductions

Additional deductible expenses include:

– Insurance premiums: The cost of commercial or rideshare insurance policies required for Turo rentals is fully deductible.
– Repairs and maintenance: Oil changes, tire replacements, brake repairs, and other necessary upkeep can be deducted, but only for the business-use portion of the vehicle.
– Car washes and detailing: Cleaning costs incurred to maintain the vehicle for renters are deductible.
– Tolls and parking fees: If incurred while delivering the car to renters or retrieving it after a rental, these costs qualify as business expenses.
– Turo platform fees: Commission and service fees deducted by Turo from rental earnings are considered business expenses.

Recordkeeping Essentials

Accurate financial records are crucial for Turo hosts. The IRS recommends keeping records for at least three years from the date a tax return is filed, but in cases of substantial underreporting (over 25%), the statute of limitations extends to six years.

Using accounting software such as QuickBooks Self-Employed, Wave, or Xero can streamline expense tracking and income reconciliation. Maintaining a separate business bank account and credit card for Turo-related expenses prevents mixing personal and business finances.

Digital recordkeeping is preferable, as electronic records are easier to organize and retrieve. The IRS accepts digital copies of receipts, contracts, and invoices. Cloud-based storage solutions like Google Drive, Dropbox, or Evernote help safeguard records.

Estimated Tax Payments

Since Turo income is not subject to automatic withholding, hosts must make estimated tax payments. Quarterly estimated payments are due on April 15, June 15, September 15, and January 15 of the following year.

Using Form 1040-ES, taxpayers can calculate and submit payments electronically through the IRS Direct Pay system or the Electronic Federal Tax Payment System (EFTPS).