Trucking & Taxes – July 2023
Some people go into business to get away from being captive or controlled.
As an owner-operator trucker, you enjoy the freedom of the open road as well as the freedom to run your own business.
However, being a business owner still has limits on your freedom. Even though the transportation industry’s role in the supply chain is crucial to the U.S. economy, as a business owner you have to deal with other factors. Political, fuel costs, labor and technology affect the cost of transporting goods.
The importance of those factors grows even more when you decide to expand from being a one-truck owner-operator. Whether you add one truck or become a fleet owner with 10 trucks, it will mean dealing with more regulations and requirements.
Business plan
Any good business owner should start by establishing a business plan.
A business plan simply and clearly shows what your expected revenues and expenses will be. This includes how much you need to make as well.
Business structure
Will you be a limited liability company, corporation (S corporation or C corporation) or a partnership?
Business operations
How will you operate? You must determine how you will find loads, run your back office, and take care of operations, including repairs and maintenance.
Federal and state regulations
Before you start operating, your company needs to comply with the following:
- S. DOT Number. The U.S. Department of Transportation requires carriers to have a unique identifier that is used to collect and monitor safety information, inspections, investigations and more.
- Operating Authority. All for-hire carriers must receive operating authority from the U.S. Department of Transportation. This dictates what type of cargo you will be carrying.
- Heavy Vehicle Use Tax. To fund highway programs, the federal government charges an annual tax on trucks exceeding 55,000 pounds.
- International Fuel Tax Agreement. IFTA is an agreement between the lower 48 U.S. states and Canadian provinces to simplify reporting of fuel use by carriers who drive in multiple states. Carriers file a quarterly fuel tax report that determines their tax and distributes it to the states.
- BOC-3 filing. Carriers must designate a process agent to whom court papers may be served in a legal proceeding. You need to designate a process agent in each state where you maintain an office or establish contracts. Some companies offer blanket coverage that designates a process agent in every state.
- Drug Testing and FMCSA Clearinghouse. Whether it is complying with government regulations or customer contracts, it’s important to stay legal by managing your drug testing program and registering all drivers with the FMCSA Clearinghouse.
There are many other federal and state regulations, including size and weight standards, EPA/air quality regulations, and safety rules. You can always call OOIDA to help handle the paperwork for you, including getting your authority and assisting with other compliance requirements.
What’s next?
The paperwork is done. You have your business plan and entity set up. You’ve determined your operations, have your authority, and you’ve made it through the federal and state regulations.
Now you need to decide whether to buy or lease, acquire insurance, hire drivers and build your business. And don’t forget about taxes.
For operations, you need to determine whether you will hire company drivers or owner-operators.
The difference between company drivers and owner-operators comes down to the fact that company drivers will be on payroll, and you will be responsible for paying the drivers less federal and state withholding, as well as Social Security and Medicare. The company will in addition match the Social Security and Medicare plus federal and state unemployment taxes.
For owner-operators, they are considered contractors and must meet certain rules. The IRS and many states have adopted principles to define a contractor. Those rules primarily focus on the level of control.
- If the worker supplies his or her own equipment, materials and tools.
- If the worker can be discharged at any time and can choose whether or not to come to work.
- If the worker controls the hours of work.
- What is the degree of control over work and who exercises that control?
- What is each party’s level of loss in the relationship?
- Who has paid for materials, supplies and/or equipment?
- What type of skill is required for work?
Certain factors will define a person as an independent contractor in almost every case: not relying on the business as the sole source of income, working at their own pace/way as defined by the agreement, not being eligible for employer benefits, as well as retaining control and independence.
An independent contractor is their own boss. The work is defined and stays within the written contract and adheres to certain requirements.
An employee relies on the business for steady income, gives up elements of control and independence, is eligible for certain benefits, and works within the constraint of the workplace.
Should employers incorrectly define a worker as an independent contractor, they may find themselves liable for past taxes including FICA and federal unemployment tax.
Business and personal taxes
Each type of entity you chose at the beginning of your business will have an impact on taxes.
A limited liability corporation can be taxed several ways.
- Single member, usually as a sole proprietor on Schedule C on your 1040.
- Multiple member, usually as a partnership on a 1065 company pays no tax but each partner/ member receives a K-1 from the LLC.
- S corporation This is an election that has to be made by the LLC timely. The company files a 1120S and each shareholder/member receives a K-1 from the LLC.
A corporation also can be taxed several ways.
- C corporation files an 1120 and pays tax at the company level. Dividends/distributions are taxes to the shareholders when paid on their personal Form 1040. Thus, double taxation exists with C-corps.
- S corporation is an election that has to be made by the LLC in a timely manner. The company files a Form 1120S and each shareholder/member receives a Form K-1 from the LLC.
Usually as a partnership on a 1065 company pays no tax, but each partner/ member receives a K-1 from the LLC.
All the rules and regulations are not meant to keep you out of going into business but should be a major consideration before entering business.
As always, we suggest you talk with your tax adviser and attorney before going into business to determine the right entity for taxes and potential liability. Reach out to OOIDA as well to help guide you through starting your business with the rules and regulations.
Even better, sign up for OOIDA’s Truck to Success. The seminar will be Oct. 17-19. LL
This article has been presented by TruckerTaxTools.com, a division of Taxation Solutions Inc. – Tax Relief. Barry G. Fowler, EA, president of Taxation Solutions, has been providing IRS tax debt resolution and bookkeeping services to the trucking industry for more than 22 years. If you would like a free consultation, contact the company at 877-966-2477. Its website is TruckerTaxTools.com. This article does not give and is not intended to give specific accounting and/or tax advice as everyone’s tax situation is different. Please consult with an expert at TruckerTaxTools.com, the leader in trucker taxes.