The good news is, maybe you are ignorant to the advantage of tax deductions as an owner operator of the trucking business and hence you are paying way more than what you are supposed to be paying as taxes.
Ever felt like your business is at a partial loss with the monster tax bill you received at the end of the year or quarter year? Did it feel like the government is eating into your profits? Did it urge you to think of wicked ways out of paying heavy taxes? Did the tax paying system seem downright unfair? If yes, then probably you aren’t much updated with the benefits of tax deductions in the trucking business.
As an owner operator of the trucking business, your tax procedures and rules are different from that of a normal employee. While employees have their taxes directly deducted from their paycheques, you need to file for your own taxes which include a lot of decision making, based on the current available tax rules and regulations. This may get a little challenging and tedious at the same time.
There are a lot of points to consider before filing for taxes, whether quarterly or yearly, and tax deductions are definitely one of them. So what exactly are these tax deductions? What is the list of factors that come under the term “Tax Deductions” for an owner operator of the trucking business? What is deductible and non-deductible tax?
- Deductible Tax
- Tax on Depreciating Property
- Business Loans, Mortgages and Interest
- Medical Expenses
- Dependent Deduction
- Dispatch Fees
- Truck Supplies and Accessories
- Start-Up Cost and Investment
- Office Expenses
- Safety Gear
- Uniform and Laundry
- Guard Dog
- Office at Home
- Insurance Premium Costs
- Retirement Plans
- License and Permits
- Travel Allowance and Fuel
- Truck Lease
- Communication Equipment and Bills
- Repair and Maintenance
- Credit Card and ATM Fees
- Gym Membership
- Per Diem Costs
- Non Deductible Expenses
- Non-Productive Machine Time
- Less Than 50 percent for Dependent Cost
- Your Own Clothing (Street Clothing)
- Time Lost in Maintenance and Repair
- Deadhead Trips
- Importance of a Tax Home
- Maintaining Good Records
- Rules for Owner Operators who Subcontract
- The Tax Cuts and Jobs Act of 2017 Law
- Fluctuating Tax Rules
Absolutely everything that comes under business expenses can be deducted while filing for taxes. Here is a detailed list of what you should consider for tax deductions while filing for taxes.
Tax on Depreciating Property
Equipment used for your trucking business that has a depreciating value can be deducted from the taxes you pay. These include property, trucks, trailers, office machinery, etc.
Business Loans, Mortgages and Interest
If you have mortgaged or taken a loan for the business, then you can deduct interest you pay on the loan or mortgaged property from your tax every year.
Business related expenses for DOT physical test, drug testing, sleep apnea test, etc. are deductible expenses.
Child and parent support expenses can be deducted. The parent can be an in law or grandparent as well.
Fees paid for a dispatch service is deductible.
Truck Supplies and Accessories
Supplies such as fire extinguishers, chains, atlas, ice scraper, etc. can be used as business related expense and hence is tax deductible.
Start-Up Cost and Investment
Setting up a business requires money in the form of investment which can be considered tax deductible.
Office supplies like stationary, calculator, furnishing, etc. can be included in this list as well.
Expenditure on safety gear like metal toe shoes, gloves, helmets etc. are to be claimed.
Uniform and Laundry
Uniform cost and laundry cost on the go is deductible when away for an overnight trip.
You can deduct your dog expenses while filing for taxes as well, provided the dog is always on the truck as a guard dog while on the go. These expenses include dog food, veterinary bills, etc.
Office at Home
You are eligible for this deduction if you have opened your office in your house itself. You need to use the home office on a regular basis. The home office should be your main place of business. It should be used exclusively for business purpose.
Insurance Premium Costs
Both company as well as personal insurance plan premiums can be added to tax deduction. This stands as a big plus as insurances help you reap benefits later on in life while paying their premiums give you instant benefits on tax.
Any retirement plan that you sign up for can be filed for tax deduction. Retirement plans taken for your spouse include too.
License and Permits
Absolutely any fee paid for business purpose can be deducted from tax payment. 50 percent of self-employment tax is supposed to be deducted while filing for taxes, as well.
Travel Allowance and Fuel
The amount you spend while traveling away from your tax base is deductible. These expenses include toll, parking, fuel, registration fees, lodging, etc. You can also add cleaning equipment and material like detergent, etc. for tax deduction.
Except for the down payment of the vehicle, all lease payment can be filed for tax deductions.
Communication Equipment and Bills
Use of phone for business purpose can be attached to your tax deduction file. The monthly phone bills can be claimed as well. Internet bill and cell phone data plans can also be part of the claim. However, only 50 percent of access fees are permitted for deduction by the IRS.
Repair and Maintenance
Truck or machinery breakdown expenses are deductible. Service and maintenance of the truck or machines at your work place can also be claimed for tax deduction.
Credit Card and ATM Fees
Only the fees for withdrawal of money for business purpose can be claimed for tax deductions.
A gym membership can be used as a deductible expense only if it is recommended by a doctor in order to treat a medical condition. The membership must be taken only after the diagnosis and issued prescription.
Per Diem Costs
Per Diem expenses are assumed expenses by the IRS. These expenses include food, beverages, travel tips, laundry while on the go, lodging in case of an overnight business related trip, etc. The IRS gives a $60 to $70 allowance per day for which receipts or a log need not be maintained. Owner operators of the trucking business reap the same benefits through the Schedule C form and enjoy deductions on self-employment tax as well as income tax in the bargain. However, the IRS only allows for an 80 percent deduction on these expenses.
To put it in short, absolutely anything from a pencil to a new vehicle can be claimed for tax deductions as long as it is purchased for business purpose. These expenses can be as ordinary but equally necessary to run the business.
Non Deductible Expenses
As the aforementioned are things you can claim for tax deductions, there are also a few things you cannot. Tax deductions come with a set of rules to be followed and a criterion to fit in, in order to be eligible for the deductions. Let us take a look at what cannot be deducted as an owner operator of the trucking business.
Non-Productive Machine Time
If a machine is not in use or is inactive after work hours during which time and productivity is lost, the lost time cannot be claimed for tax deductions.
Rule breaking fines cannot be deducted. For example if you are fined for over speeding or breaking a signal, you cannot claim it as a deduction.
Less Than 50 percent for Dependent Cost
If you don’t pay for more than 50 percent of a parent support cost, you cannot claim that expense for deduction.
Your Own Clothing (Street Clothing)
Only uniform and safety clothing used for business purpose is deductible. Street clothing does not come under this category and therefore cannot be claimed.
Time Lost in Maintenance and Repair
The time an owner operator loses while repairing his truck in case of a breakdown, cannot be filed for tax deductions.
Income lost due to empty return trips is not deductible.
Importance of a Tax Home
The travel expense claim demands that you travel away from home. It is therefore extremely important to have a tax home in order to determine whether you are traveling away from it or not. The IRS considers your city or surrounding as your tax home. This place could also be the place of dispatch or the place where you are handed assignments and not necessarily be the home of the self-employed driver.
The tax home refers to your city and area in general. It does not mean one specific place. However, if you do not have a place of work, then your residing house could be used as your tax home. In this case, you need to show that you help maintain your place of residence in some manner or the other when you are away from home, in order to have it as your tax home. In case you cannot show the maintenance, you cannot have that as your tax home.
A tax home could also be used as the places at which the travel begun and ended. For this you need to maintain a log book and save receipts to show expenses during the travel.
Maintaining Good Records
One cannot stress harder on the importance of maintaining good records when it comes to filing for taxes, whether yearly or quarterly. As tax deductions are the most ultimate way of reducing tax burdens for a self-employed truck driver, it is all the more important to have records and receipts of your expenses to reap the benefits of tax deduction. Here are a few tips you could follow in order to maintain strong records;
- Maintain a file, either trip wise or month wise.
- Use a hard drive or log book to store information. Google drive could be used as a secure option as well.
- Organize your receipts each week instead of leaving all for the last minute.
- Use an app for record storage. Applications are handy and very easy to use.
Rules for Owner Operators who Subcontract
An owner operator with more than one truck is likely to hire another driver. This is simply known as subcontracting the services. Every subcontractor you hire should be issued a Form 1099-MISC for payments that amount to $600 or more for that accounting year. The form requires the sub contractor’s name, address, tax ID, and payment amount.
The next step of the owner operator should be filing the IRS Form 1096 with a compilation of all 1099-MISC payments. The IRS Form 1096 should be submitted before the end of January every year to avoid unnecessary fines and penalties.
The Tax Cuts and Jobs Act of 2017 Law
The Tax Cuts and Jobs Act was a law formed in the year 2017 that actually raised concerns regarding the same. However, as per the law, owner operators of the trucking business could still claim their everyday per diem. The law also allows a 20 percent claim on pass through entities which benefit a lot of owner operators especially when it comes to double taxation.
Sole proprietorship, limited liability corporations (LLC), S corporations and partnerships come under pass through entities and it is necessary for the owner operators of such firms to ensure maximum tax benefit and savings while paying their taxes. The new law claims a minimum saving of $2000 for the owner operator of the trucking business. The law aims at guarantying more savings for more earnings.
Under this law, if the driver of the truck is not an individual contractor, he cannot claim his daily per Diem as an employee. The law also plans on removing the health insurance mandate on owner operators in near future.
Fluctuating Tax Rules
Tax rules and regulations are ever changing and hence are likely to fluctuate every year. It is very important for an owner operator of the trucking business to keep himself updated with the changing rules and file for taxes accordingly. Talk to your tax advisor in case of any tax related confusions. Tax advisors prove to be very helpful in eliminating unnecessary errors and gaining attention towards overlooked laws while filing for taxes.
Please not that filing for unnecessary and invalid deductions will lead to IRS audits and inquires. Keep yourself updated with the latest change in tax deduction rules before claiming deductions or ask your tax advisor for help.
Please refer to Everything Owners Need To Know About Tax Deductions, Blog for a better understanding on tax deductions.