Owner-operators in the trucking industry can use all the tax breaks available to keep their cash flow up. With all the changes in tax breaks and tax cuts, it is important to keep up-to-date, especially if you are doing your taxes. The most important thing to remember throughout the year is keeping your receipts.
Common Deductible Expenses
The following expenses are deductible for most owner-operators in the trucking industry.
Depreciating Property – Your business equipment, whether it is your truck, trailer or office equipment depreciates with use and time.
Casualty Financial Loss – Any equipment damage from accidents or weather-related accidents.
Home Office – If you manage your trucking business from an office within your home, you can deduct the expenses and size.
Business Related Loans and Mortgages – Any interest payments made throughout the calendar year are deductible.
Phone and Internet Access Fees – Your home phone, mobile devices, and internet used for business purposes, is deductible. The IRS only allows 50% of access fees as deductions.
ATM, Bank, and Credit Card Fees – Any business-related fees incurred throughout the year.
Satellite Radio – Satellite radio can be used for weather and traffic information; therefore, subscription fees are deductible.
Maintenance Costs – Any maintenance, or cleaning, performed on your truck and trailer is deductible. However, if you do your own maintenance, you can only deduct parts cost.
Fuel – Fuel costs you pay for out of your own pocket includes fees for fuel cards that is not reimbursed from any other business.
Licenses, Permits, and Government Fees¬ – Any fees you pay to keep your business legal is deductible, along with half of the self-employment tax. However, any fees you paid for traffic violations or government penalties cannot be deducted.
Per Diem Costs – These costs differ for owner-operators with their own trucking business and those who drive for a carrier as an independent contractor. For owner-operators who own their business, you are allowed a daily per diem amount for meals and other expenses, including lodging. Use Schedule C tax form to report expenses. For independent contractors with a carrier, you can deduct only expenses for which you are not reimbursed for.
Retirement and Insurance Plans – For retirement plans for you and your spouse, such as an IRA or Keogh, all contributions are deductible. Insurance plans that cover premiums paid for personal plans and for company plans.
Truck Lease – All lease payments, except the down payment, is deductible when you have a lease-purchase agreement.
Owner-Operators Who Subcontract
When you own more than one truck and hire someone to drive that truck, you are then subcontracting their services. You will give each subcontractor a Form 1099-MISC for payments totaling $600 or more for that calendar year. You will then file IRS Form 1096 with a compilation of all 1099-MISC payments. This form must be filed by January 31st to avoid penalties.
Tax Cuts and Jobs Act of 2017
The Tax Cuts and Jobs Act is a reform law which went into effect in December of 2017. Although there were many concerns when this law was proposed, owner-operators will continue to claim the daily per diem. The reform law allows for a 20% deduction for pass-through entities; this will apply to the majority of owner-operators.
A pass-through entity is described as an owner-operator business which has been set up as one of the following:
- Sole proprietorship
- Limited liability corporations (LLC)
- S corporations
It is recommended for owner-operators to speak with a business service professional to ensure they are getting the most savings out of the new tax system. Switching from one business entity to another may be necessary.
Eighty percent of owner-operators net profit is all that will be taxed beginning with the 2018 tax year. Most will see a savings of $2000 or more with this new law and other tax deductions. The idea is the more you earn, the more you save.
Company drivers, who are not independent contractors, will no longer be able to claim a daily per diem, in turn spending an average of $600 a year in expenses.
The new law will remove the health insurance mandate for owner-operators, but not until 2019 filing year. Until then, owner-operators will continue to be penalized under the Affordable Healthcare Act if they do not have insurance coverage.
Future Tax Planning
Owner-operators will benefit from planning for their future regarding tax cuts and savings. Tax rates often change, therefore, keeping up-to-date on changes. When tax rates drop, make sure all expenses are done before the end of the current filing year. Also, it would benefit to refrain from depositing income until after the beginning of that filing year with lower tax rates, as the income will be taxed at a lower rate.
Often when owner-operators file their own taxes, it is easy to claim expenses which are not deductible. This error could cause the IRS to audit your business. The following expenses are not deductible:
- Street clothing – Only company required uniforms and protective clothing is deductible.
- Income lost due to deadheading.
- Income lost due to downtime.
- Your time spent performing repairs and maintenance on your truck and trailer.
Preparing and filing your own taxes can save you time; however, there are so many changes you should ask yourself if it is worth the time you save. When you choose to do your taxes, ensure you are aware of all changes, keep all your receipts, and file on time. It will be easier to prepare your taxes if you keep your receipts organized throughout the year. Do not forget to keep all your tax receipts for at least three years. Maintaining records make IRS inquiries and audits less stressful. It is highly recommended to seek professional tax help when filing taxes.