Many owner-operators face big challenges while operating their own trucking business: understanding how you and your business are taxed. The best way to avoid big tax surprises is to plan and keep excellent records throughout the year properly.
The second biggest challenge for owner-operators is knowing the difference between a tax deduction and a tax credit.
Let’s go over a few important areas that you should know about tax season as an owner-operator.
Tax Deductions and Tax credits: What’s the difference?
Tax credits are tax incentives that reduce the amount of taxes owed. Tax credits differ from tax deductions in that tax credits reduce the amount of tax dollars owed, while tax deductions merely reduce taxable income.
Owner-operators who use their own truck for work can take advantage of some tax credits designed to help them with their business expenses. Some tax credits that owner-operators may qualify for include tax deductions on truck expenses, tax incentives to help with purchasing a new vehicle, tax credits for using alternative fuel, and more.
Tax Credits Available To Owner-Operators:
Truck Expense Tax Deductions – This tax credit allows business owners who use their own company vehicles in the common owner-operator tax credit opportunities to include:
- Fuel tax credit (available at different rates depending on whether you purchase fuel)
- Vehicle acquisition tax credit (a percentage of costs is refundable up to a certain limit)
- General business credit (available when you have other necessary expenses). These are just a few examples!
If you are an owner-operator, tax credits can certainly make a difference in your net income.
For more information on tax deductions and tax credits available to owner-operators, visit the IRS website or consult with a tax professional.
Which is better: a tax deduction or a tax credit?
That depends on your individual tax situation. Generally speaking, tax deductions are more advantageous if you have a high taxable income, while tax credits are more beneficial if your tax liability is low. However, it’s always best to speak with a tax professional to determine which option is best for you.
Truck driver deductions you may not be aware of:
- Hand Cleaner
- Paper Towels
- Portable Vacuum
- Trash Bags
- Window Cleaner
- Alarm Clock
- Cab Curtains
- Coffee Maker
- First Aid Supplies
- Cooking Appliances
- Air Fare
- Cab Fare
- Hotel/Motel Expenses
- Log Book
- Notebook Paper
- CB (and repairs)
- Cell Phone
- GPS (and paid updates)
- Boots / Shoes
- Hard Hat
- Rain Gear
- Safety Glasses
- Hand tools
- Duct & Electrical Tape
- Tire Iron
- Bunge Cords
- Load Chains
- Load Straps
- Wide Load Flags
- Uniforms & Alterations
- Laundry Cleaning Supplies
All of the above are justifiable deductions, but many more are not listed here. Most expenses can be used as deductions if the expense is not reimbursed or paid for by anyone else and is needed to complete your job.
Owner-operator truckers can take advantage of several tax credits designed to help offset some common business expenses. These tax credits can make a significant difference in your net income at tax time! If you’re an owner-operator, be sure to explore all the tax deductions and tax credits that may be available to you.