The tax season is around the corner again, which means owner-operators will have to navigate the ever-challenging tax filing process. In this post, we discussed some helpful tips to maximize your profits, minimize your taxes, and reduce your stress.
Reminder: This article is intended for educational purposes only. For legal tax advice, you must consult a licensed tax professional accordingly.
Types of taxes that apply to truckers
It’s crucial to understand that truck drivers and owner-operators pay different taxes. For the most part, owner-operators shoulder most of the filing responsibilities.
Based on business tax types, here’s what drivers and owner-operators owe the Internal Revenue Service (IRS):
Income tax
Income tax or employment taxes is the amount withheld from an employee’s paycheck filed using the W-2 form. This is only applicable to employed truck drivers hired by trucking companies or operators.
It’s the responsibility of the owner-operator to file their employees’ taxes properly. Here’s a quick guide on how to prepare and file the W-2 form.
Self-employment tax
Self-employment (SE) tax applies to owner-operators or independent contractors. SE basically refers to Medicare and Social Security taxes.
Take note that three schedules are used to determine which form you must use when filing your trucking taxes. For this part, you have to use Form 1040.
Not sure where you qualify? Read this comprehensive guide from the IRS.
What does the owner-operator pay in trucking taxes?
Owner-operators are obligated to file both an annual return and quarterly estimated tax.
When it comes to annual tax, owner-operators may or may not file, depending on their net earnings.
Net earnings or net profits are the amounts left after subtracting your total deductible business expenses from your income.
If your self-employment net earnings are more than $400, you must file an income tax return. Meanwhile, if it’s less than $400, you may still need to file an income tax return if these conditions apply to you.
Aside from that, owner-operators also have to file estimated taxes. This is the method of paying your self-employed taxes, which covers the income not subjected to tax withheld.
Estimated tax must be filed quarterly at a rate of 15.3% (2.9% for Medicare and 12.4% for Social Security).
About the Heavy Highway Vehicle Use Tax
Heavy Highway Vehicle Use Tax (HVUT) is a federal excise tax applicable to vehicles with a gross taxable weight of more than 55,000 lbs.
Vehicles with a gross taxable weight of 55,000 to 75,000 lbs. will pay $100 plus $22 for every 1,000 lbs. in excess of 50,000 lbs.
Meanwhile, vehicles carrying more than 75,000 lbs. of taxable weight will pay $550.
This fee will be collected by the IRS and will be used to fund the improvement and maintenance of US highways.
Owner-operator tax deductions list
Tax deductions for truck drivers-owners allow them to minimize their dues legally. During tax preparation, it’s important to factor in the following allowable deductions:
- Truck leases
- Repairs and accessories
- Business-related communication equipment
- License and permit fees
- Accounting services
- Retirement plans
- Insurance premiums
- Depreciable property
- Fuel tax
- Business travel expenses
- Protective work equipment
- DOT physical costs
- Business loan interest upon payment
- Vehicle miles used for business-related trips (e.g., meetings, trade shows, bank transactions)
- Legal fees related to business
- Per diem
Take note that these are just some of the possible deductions you can enjoy. If you want to maximize your potential deductions, our CPAs can help through our trucking accountant services.
About per diem
According to the IRS, per diem refers to allowances paid to employees to cover meals, loading, and incidental expenses while traveling for business. This amount is paid in place of actual travel expenses, which are harder to control and compute.
On the other hand, owner-operators can only deduct per diem for meal costs.
Take note that per diem deductions are only viable if you or your employee are away overnight. This is tracked using electronic logs (e-logs) to ensure accurate and acceptable records.
Aside from that, you should keep receipts to ensure that these deductions will be factored in during tax preparation. Otherwise, you’ll be missing out on tax savings.
To know the per diem rates applicable to your city and state, you can use this per diem tool from the U.S. General Services Administration.
Owner-operator expenses that are not deductible
As much as there are allowable deductibles, you should also be aware of non-deductibles. These are expenses including:
- Home phone lines
- Everyday clothing
- Interest paid on personal loans
- Deadhead miles
- Downtime expenses
- Commuting costs
- Personal vacations and recreation
- Reimbursed expenses by an employer
- Penalties and fines
It’s best to consult a professional to know what expenses on your list can’t be legitimately applied as a deductible. This will also save you from any legal problems with the tax bureau.
New tax laws for truck drivers
Owner-operators must stay in the know of the latest tax laws to avoid penalties and maximize potential deductions.
So far, here are some of the latest regulations that affect the trucking industry:
New rules and limitations for depreciation
Under the Tax Cuts and Job Act (TCJA), qualified asset purchases from Sept. 27, 2017, to December 31, 2022, can be expensed by 100%. This will be slowly phased out by 20% per year until it expires on January 1, 2027.
IRS increases standard mileage rate by 3 cents for 2023
Starting January 1, 2023, the standard mileage rate for operating vehicles for business is 65.5 cents per mile. This is 3 cents higher than the mid-year increase in 2022. Take note that leased vehicles must use the standard mileage rate throughout the lease duration.
Tax home requirement for per diem deductions
For business owners to qualify for per diem deductions, they must have a ‘tax home’, according to the IRS. The revenue agency set specific requirements about this on their IRS Publication 463.
Tips for filing truck driver taxes
Filing your taxes as an owner-operator doesn’t have to be mind-racking. Below, we listed a few tips and tricks to help you get through the tax season with ease:
1. Track your expenditures all year round
Slacking on your record-keeping will hit you hard come tax season. Your records will be messy, and you’re at risk of having return discrepancies.
Instead, you can use trucking software to streamline your records and avoid missing receipts or important documents.
If possible, log all expenses and income as they come. Remember that mental notes are only as good as your short-term memory. So once an expenditure occurs, sit down, open the books, and jot them down.
2. Use the correct forms
Many owner-operators, especially newbies, get lost in a pile of IRS forms. Remember that there’s always a corresponding form for all types of income, expenses, and other deductions.
The good thing is that the IRS has a complete guide on forms, instructions, and publications. You can check which form you need to file and how you should fill it out.
3. File as early as possible
Waiting until the last filing date on April 15 won’t give you enough time for potential changes and delays.
Make sure you start tax preparations early for easier and hassle-free filing. This will also prevent confusion due to cramming.
For simple tax returns, e-file them and set a direct deposit with the IRS. Meanwhile, those with complicated filings must start weeks early to ensure that there will be no discrepancies on the return.
4. Know the new rules
Tax rules and regulations are ever-changing, so always stay in the loop with IRS publications and notices. This will save you from penalties, delays, and excessive tax payments.
Specifically, you’d want to stay updated on rules regarding tax credits and deductions. This will help you save money on your trucking business.
5. Work with an expert
Here’s the good news: you don’t have to go through tax filing alone. You can easily get the help you need by hiring bookkeepers, accountants, and other specialists.
While their services cost a fee, it’s just a small thing compared to the convenience and peace of mind you’ll get.
Hire a reliable truck accounting service today!
Do you want to avoid IRS penalties or overpayments? Our truck accounting service is the solution! With us, you’ll get a complete team for all your accounting, invoicing, and billing needs.
Our specialists will provide accurate tax preparation and reconciliation and real-time P&L reports. You can drive and deliver your loads without worrying about your finances.
Also, you’ll have access to all your receipts and documents anytime and anywhere through our digital portal. The only thing you have to do is review and deliver your financial statements to your CPA at the end of the year.
If you’re tired of stressful tax filing, contact Factoring Express today. Let our accounting experts get your finances in order!
