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A reader who delivers food wants to know if he can both drive and save.

4 minute read

Question: What are the tax benefits of leasing a car (2016 Toyota Prius) for Doordash and how does personal use affect it? – Junior B. in West Haven, CT

Mandi Woodruff, executive editor at MagnifyMoney, responds…

Dear Junior,

Leasing a car that you intend to use for business purposes, such as Doordash, does come with some tax benefits, but you want to make sure you consider all the aspects of leasing before making your decision.

When you lease a car, you get to deduct the business portion of your expenses of owning and operating the vehicle. That can add up to a sizeable deduction. It includes the business portion of:

  • Your lease payments
  • Gas and oil
  • Repairs, tires, other maintenance
  • Insurance
  • Vehicle registration fees

Note that if you make any advance payments on your car, you must spread them over the entire lease period. If you make payments to actually buy the car, you can’t deduct them, even if they are called lease payments.

In addition to the standard mileage rate or actual vehicle expenses, you can deduct the full amount of any tolls and parking you paid while driving for Doordash.

Understanding inclusion amounts on car leases

One more thing: You may have heard about “inclusion amounts” and leased cars. An inclusion amount is additional income you may need to report when leasing a car for business purposes. However, the IRS only requires it if all the following are true:

  • You lease your car for 30 days or more.
  • The fair market value of the car is more than $50,000 for leases that began in 2018 or later (up from $18,500-$19,000 before the new tax law).

That shouldn’t be a problem with a 2016 Toyota Prius. A used 2016 Toyota Prius has a list price range of around $14,000 to $27,000, according to Edmunds. That’s well under the $50,000 limit. Your lease agreement may show the “capitalized cost” of the car. If so, that is considered to be the fair market value for inclusion amount purposes.

Determining mileage for business deductions

If you’re using the car for business and personal purposes, you’ll need to determine the percentage of time it’s being driven as a business vehicle. Don’t be intimidated — if you use tax software to prepare your taxes, you can enter your business mileage, total miles driven for the year, commuting mileage (nondeductible) and your total vehicle expenses. The tax software program calculates the percentage of your vehicle use that is for business and applies it to your total vehicle expenses to determine your deductible expense.

You also have the option of using the standard mileage rate to figure your business expense deduction, but it just involves a little more legwork. The standard mileage rate for 2019 is 58 cents per business mile driven.

The pros and cons of leasing a car for business

I usually recommend buying a car with cash instead of leasing, when a person can afford it. If you always pay cash for a car and keep it for as many years as you can, you’ll save a lot of money in the long term. But I know that’s not always an option — you may not have a down payment and verifiable income to qualify for a loan on a good car. If you’re looking to work for Doordash or any other service that requires you to provide your own transportation, a safe, reliable and even respectable car is a must.

Here are some benefits of leasing a car that you intend to use partially for business:

  • You get a better car for the money in the short term. You can put less money down and have lower monthly payments, and still get a late model car.
  • You don’t have the long-term commitment of buying a car. If always driving a new car is important to you, you can lease another new car after this lease is up.
  • Leasing a car can have tax benefits. You can deduct the business portion of your lease payments and other car expenses.

On the other hand, make sure you know the downsides of car leasing:

  • You never own the car. If you’re always leasing, you never own a car outright. The cheapest years in a car’s life are after it is paid off and it is past the early years of steep annual depreciation.
  • You may be charged for extra mileage. Many car leases have rather low limits on mileage without extra fees. If you’re driving for Doordash, Uber, Lyft or other services, you could go way over those limits, and get hit with a sizeable bill.

A 2016 Toyota Prius, while more economical than a new model, is still a nice car. It looks professional, is rated 4.6 stars out of 5 by Edmunds consumers and it gets 52 miles per gallon fuel economy overall. It even gets good marks for its cargo capacity, which could be important to you. In my opinion, it could be a smart move for you as you start your new venture with Doordash.

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About the Author

Mandi Woodruff

Mandi Woodruff

Mandi Woodruff has nearly a decade of experience as a journalist and has spent the bulk of her career covering the ins and out of personal finance. In 2015, she launched the career and money podcast Brown Ambition, which airs weekly on iTunes. Before joining MagnifyMoney, Mandi was the personal finance correspondent at Yahoo Finance and the personal finance editor at Business Insider. She graduated from the Grady College of Journalism and Mass Communication at The University of Georgia.

Published by Debt.com, LLC