Airbnb and Rideshare Tax Tips for 2015 Taxes

At Shared Economy CPA, we had the opportunity to help hundreds of Rideshare Drivers and Airbnb Hosts with their finances and income. As the tax code is continuously evolving and changing, we wanted to bring your attention a few new areas of tax changes in the tax code this year.

Airbnb and 1099’s

The Internal Revenue Service (IRS) requires that all US companies processing payments, including Airbnb, report the gross earnings of US customers that earn over $20,000 and have 200+ transactions in the calendar year for 1099-K individuals. If you cross both IRS thresholds in a calendar year, Airbnb will provide you with a Form 1099-K. This is new for 2016 for Airbnb hosts as they have previously provided 1099’s to individuals who made less than $20,000 and had less than 200+ transactions.

For hosts who do not earn over $20,000 and have over 200 transactions in the calendar year, Airbnb will not issue a Form 1099-K to them. Does this indicate that this group of Airbnb hosts does not need to report this part of income on their tax returns? The answer would be no. Unlike a W-2, you generally do not have to attach Form 1099 to file your tax return. Failing to report 1099 income may cause your return to understate your tax liability. If this occurs, the IRS may impose an accuracy-related penalty that is equal to 20 percent of your underpayment.

Determining Actual Costs or Standard Mileage Deduction for Rideshare Drivers:

For all Rideshare drivers, there are two different tax deductions that are generally available to them: the Standard Mileage Deduction and the Actual Costs. Before breaking down the pros and cons, we should review the basic rules of these two methods.

Standard Mileage Deduction:

You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. For 2015, the standard mileage rate for the cost of operating your car for business use is 57.5 cents per mile.

If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. You cannot deduct any actual car expense, including depreciation, lease payments, maintenance and repairs, gasoline, oil, insurance, or vehicle registration fees.

If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use either the standard mileage rate or actual expenses.

A special rule to make note of, is if you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. That means once you make your decision, you can no longer change your method back and forth.

You cannot use the standard mileage rate if you:

• Use five or more cars at the same time (such as in fleet operations),
• Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction),
• Claimed a section 179 deduction (discussed later) on the car,
• Claimed the special depreciation allowance on the car,
• Claimed actual car expenses after 1997 for a car you leased, or
• Are a rural mail carrier who received a qualified reimbursement. (See Rural mail carriers , earlier.)

Actual Costs Expenses

If you do not use the standard mileage rate, you may be able to deduct your actual car expenses.

If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction.

Actual car expenses include:

• Depreciation
• Licenses
• Lease Payments
• Registration Fees
• Gas
• Insurance
• Repairs
• Oil
• Garage Rent
• Tires
• Tolls
• Parking Fees

If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses.

• Business and personal use. If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. You can divide your expense based on the miles driven for each purpose.
• Employer-provided vehicle. If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. You cannot use the standard mileage rate.
• Interest on car loans. If you are an employee, you cannot deduct any interest paid on a car loan. This interest is treated as personal interest and is not deductible.
• Taxes paid on your car. If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions.
• Sales taxes. Generally, sales taxes on your car are part of your car’s basis and are recovered through depreciation.
• Fines and collateral. You cannot deduct fines you pay or collateral you forfeit for traffic violations.
• Depreciation and section 179 deductions. Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year.

Since rideshare business situations are different from one to another, it is hard to say which deductible method is better than another. Taxpayers need to run calculations for both methods and decide which one has larger deductibles.

Which method is better for me?

Since each deduction requires specific facts to each taxpayer, we wanted to illustrate an example that may help you in determining which deduction is better for you:

A Rideshare Driver drives 40,000 miles a year; depreciation method use straight line method, which is $5000 per year; gas expense $1500 per year; tolls $1000 per year, insurance $2000 per year, parking fees $800 per year, registration fee $50, repairs $4000 per year, tires $500 per year.

According to the IRS tax codes, he is qualified for both deductible methods. If he chooses to use the “Standard mileage rate” method, his deductibles is $23,000; if he uses the “actual car expense” method, his deductibles is $14,850.

Obviously, it saves him more money on tax by using the “Standard mileage rate” method. Another situation is that if he applies “Section 179 Depreciation” and “Special depreciation allowance”, he would not be qualified for the “Standard mileage rate” method. He can only use the “actual car expense” method, and his maximum depreciation deduction for the first year is $11,160, plus the actual car expense, the total deductibles is $26,010.

Thus, if he applies depreciation and depreciation allowance for the first depreciation year, then the “actual car expense” method would benefit him most.