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I'm a tax preparer and work with several rideshare drivers. Here's my general advice: 1. Standard mileage rate vs. actual expenses is a year-by-year choice, but with some restrictions. If you used standard mileage in the first year, you can switch between methods in later years. But if you used actual expenses the first year, you're locked into that method for that vehicle. 2. For major repairs like a transmission, if using actual expenses, you generally deduct the business-use percentage in the year incurred. 3. Keep detailed records! The IRS loves to audit Schedule C deductions, especially for rideshare drivers.
Wait, I thought once you pick a method for a vehicle you're stuck with it forever? Are you saying I can switch from year to year?
You're not locked in forever. If you used standard mileage in the first year of business use, you can switch to actual expenses in a later year. But if you start with actual expenses in the first year, then yes, you're stuck with that method for the life of that vehicle. Many drivers start with standard mileage because it's simpler and preserves flexibility. Then in a year with major repairs, they can evaluate if switching to actual expenses would be more beneficial. Just remember that if you switch to actual expenses, you can't go back to standard mileage for that same vehicle.
Everyone's forgetting the Section 179 deduction! If your repair technically counts as an improvement (extends useful life significantly), you might be able to use Section 179 to deduct the entire business portion in one year instead of depreciating it.
I don't think Section 179 applies to repairs though? It's for purchasing new equipment or vehicles, not fixing existing ones.
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Don't forget about depreciation! This is a big tax benefit for the rental portion of your duplex. You'll be able to depreciate the rental portion of the building (not the land) over 27.5 years. So if your duplex costs $650k and the land value is $150k, that leaves $500k for the building. If you're using a 50/50 split, you can depreciate $250k over 27.5 years, which is about $9,090 per year in depreciation expense against your rental income.
Wait, I thought you had to separate the land value for taxes? Like the building depreciates but the land doesn't?
Yes, that's exactly right - and I mentioned that in my example. You can only depreciate the building value, not the land value. That's why in my example, I took the $650k total property value, subtracted the $150k land value, which left $500k building value to depreciate. Your county tax assessment will usually break down the land vs. building value, which gives you a starting point. Some people also hire an appraiser to do a specific cost segregation study if the property is valuable enough to make it worthwhile.
Watch out for the "recapture" if you ever sell! I learned this the hard way. All that depreciation you take on the rental portion gets "recaptured" and taxed when you sell. The current recapture tax rate is 25% (different from regular capital gains rates). I sold my duplex last year after owning it for 10 years and got hit with a huge tax bill because I hadn't planned for this.
Does that apply even if you do a 1031 exchange into another rental property?
Makes me wonder if taking depreciation is even worth it if you get taxed later anyway?
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16 Quick question - does anyone know if we need to issue 1099s for payments made through Paypal if they're already sending 1099-Ks? I heard there's some exception but not sure if it applies to my situation.
19 As far as I know, if the payment was processed through Paypal's goods and services option, Paypal will issue a 1099-K to the recipient if they meet the threshold requirements. However, this doesn't eliminate your requirement to issue a 1099-NEC if you paid them $600+ for services as a business expense. The rules changed recently though, so double-check the current requirements for the filing year.
16 Thanks for the clarification! So basically I still need to issue the 1099-NEC even if Paypal issues a 1099-K. That makes sense - one reports the payment processor's perspective and the other reports from my business perspective.
7 Don't forget that the Paypal fees themselves are fully deductible business expenses! I've been running my consulting business for years and always make sure to track these separately. In your accounting software, you should record: - Full payment to contractor: $1500 (reported on 1099-NEC) - Paypal fee: $45 (deducted as a business expense) - Net cash outflow: $1545
18 Do you track the fees individually for each transaction or just do a lump sum at the end of the year? I've been trying to figure out the easiest way to handle this.
7 I track them individually for each transaction. Most accounting software can be set up to automatically split Paypal transactions into the payment amount and the fee amount. If you're using something like QuickBooks or Xero, you can create a bank rule that recognizes Paypal transactions and automatically splits them - the main amount goes to your contractor expense account and the fee portion goes to a "Payment Processing Fees" expense account. Makes tax time much easier when everything is already categorized properly.
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Has anyone considered the fact that what OP did might actually be gifts to coworkers and those have different tax implications? The annual gift exclusion is like $17k per person, so giving $800 to each coworker shouldn't require any gift tax filing on OP's part. OP still pays income tax on the full amount, but there's no additional gift tax to worry about.
You're right about the gift tax exclusion, but I think OP's main concern was trying to avoid paying income tax on the portions given away, not about gift tax. Unfortunately, there's no way around paying income tax on the full amount since it was legally their income before they chose to give it away.
Oh good point, I misunderstood the original question then. Yeah, that's unfortunate but makes sense from a tax perspective - can't give away income to avoid the taxes on it. Thanks for clarifying!
My company actually has a formal program for this kind of thing - we can redirect part of our bonuses to other team members through HR before they're paid out. That way the money gets taxed to the person who actually receives it. Might be worth suggesting something like this to your HR department for the future, even if it doesn't help with this past bonus.
Sofia Torres
One additional thing to consider with real estate commission 1099s - make sure you have the correct TIN (Tax Identification Number) for the brokerage, not just the individual agent you worked with. I messed this up last year and issued the 1099-NEC to the agent directly using their SSN, but should have issued it to the brokerage using their EIN since they're the entity that actually earned the commission (even though the agent is the one who did the work). The brokerage had to contact me to reissue it correctly.
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Zoe Alexopoulos
•Thanks for pointing this out! I have the brokerage's W-9 so I think I'm good on that front. The W-9 shows their business name and EIN, so I'll use that on the 1099-NEC. Was there any penalty when you had to reissue it to the correct entity?
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Sofia Torres
•I didn't face any penalties because I caught it early enough and issued a corrected 1099-NEC before any filing deadlines. The agent actually called me almost immediately after receiving it because they didn't want the income showing up on their personal return when it should go to the brokerage. As long as you're using the information exactly as it appears on the W-9 they provided, you should be fine. The W-9 is specifically designed to give you the correct information for tax reporting purposes. Since you already have their W-9 with the brokerage name and EIN, you're ahead of where I was!
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GalacticGuardian
Has anyone ever tried just not filing the 1099 for these big real estate commissions? My buddy says the IRS is so backlogged they won't notice if you skip it for one-time payments. I'm skeptical but curious.
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Jamal Anderson
•That's seriously bad advice from your friend. Not filing required 1099s can result in penalties of $280 per form (for 2024), and if the IRS determines you intentionally disregarded the requirement, penalties can jump to $570 per form or more. The IRS computer systems automatically match income reporting, so when the brokerage reports the income they received on their tax return, the system will flag that they received income from you that you didn't report paying. That's an automatic red flag that can trigger further scrutiny of your returns. Plus, brokerages depend on receiving proper 1099s for their own accounting and tax filing. Not providing one creates problems for them and could damage your business relationship. It's just not worth the risk for something that takes a few minutes to do correctly.
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