Trucking & Taxes – November 2022

Are you taking advantage of all the tax deductions to which you are entitled?

Taxes are expensive, and trucking comes with a lot of taxes and potential tax liability. Filing tax returns as a driver is tricky.

That’s why it’s important to examine your taxes each year and make sure you are taking advantage of every possible tax-deductible expense.

Many of our owner-operator clients came to us for tax relief because they did their taxes themselves and got in trouble with the IRS, either through an audit or by owing large amounts of taxes because they didn’t claim all of their rightful deductions.

A lot of expenses on the job are tax-deductible. However, the IRS requires the expenses to be “ordinary and necessary” to the job.

Estimated taxes

The IRS may require owner-operators to file both quarterly estimated tax payments and an annual return. As an owner-operator the IRS considers you to be self-employed. As a self-employed taxpayer, you will be subject to self-employment tax as well as pay regular income tax. Self-employment taxes are Social Security and Medicare tax (15.3%) of net income.

Here is how to determine your estimated taxes. First, calculate the correct amount of estimated taxes. The safest option to avoid an underpayment penalty is to aim for 100% of your previous year’s taxes. If the previous year’s adjusted gross income was more than $150,000 (or $75,000 for those who are married and filing separate returns last year), you will have to pay 110% of your previous year’s taxes to satisfy the “safe-harbor” requirement. If you satisfy this test, you won’t have to pay an estimated tax penalty, no matter how much tax you owe with your tax return.

If you expect your income this year to be less than last year, and you don’t want to pay more taxes than you think you will owe at the end of the year, you can choose to pay 90% of your current year’s tax bill. If the total of your estimated payments and withholding add up to less than 90% of what you owe, you may face an underpayment penalty. So, you may want to avoid cutting your payments too close to the 90% mark to give yourself a safety net.

If you expect your income this year to be more than your income last year and you don’t want to end up owing any taxes when you file your return, then make enough estimated tax payments to pay 100% of your current year’s income tax liability.

You don’t have to pay estimated tax for the current year if you meet all three of the following conditions:

• You had no tax liability for the prior year.
• You were a U.S. citizen or resident alien for the entire year.
• Your prior tax year covered a 12-month period.

You have no tax liability for the prior year if your total tax was zero or you didn’t have to file an income tax return.

If you don’t pay enough tax through withholding and estimated tax payments, you may be charged a penalty. You also could be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return.

Owner-operators are allowed to deduct “ordinary and necessary” business expenses. Expenses vary based on your situation. However, these are general deductions that apply to owner-operators.

Truck/trailer maintenance

This truck driver tax deduction is applicable when you pay out-of-pocket for vehicle maintenance and supplies. Such expenses include these:

• Oil changes
• Tire change
• Cleaning supplies
• Washer fluid
• Brake fluid changes
• Mechanical repairs (larger mechanical repairs may require capitalization and depreciation)

Association membership fees

Paying to become a member of an organization related to the trucking industry is deductible from your taxable income. That includes your OOIDA dues.

Sleeper berth expenses

For drivers who use their sleeper berth, additional tax deductions apply. These include bedding, alarm clocks, curtains, mini fridge, fire extinguisher, cooking appliances and first-aid supplies.

Office supplies

Office supplies used by a trucker are also tax-deductible. This includes hard-copy maps, staplers, logbooks, paper, clipboards, envelopes, calculators, and pens and pencils.

Work uniforms and gear

Uniforms are deductible only when they are mandated or required by your work. Under this deduction, additional gear can qualify. Examples include protective gloves, boots, goggles, safety vests, hard hats, and shirts with logos. And as we mentioned with the travel expenses, cleaning services for work uniforms and gear are also tax-deductible.

Electronics

Any cost associated with a work cellphone or business use of your personal cellphone is tax-deductible. You can also deduct the costs for your GPS unit, satellite radio, CB radio, ELD, and internet you use while on the road.

Tools

Tools that are for the operation and maintenance of the vehicle are also tax-deductible. Some examples of tools that could potentially qualify include wrenches, hammers, mallets, ratchet straps, chains, tarps, pliers, tire irons, and bungee cords.

Other tax-deductible fees

• CDL License renewal fees
• U.S. DOT physicals
• Drug testing fees
• Sleep apnea study costs
• Tolls
• Scale fees
• Parking fees
• Personal care items and cleaning supplies
• Shower fees
• Tax and bookkeeping services

Per diem

Per diem expenses can be a helpful way to offset some of the costs associated with life on the road, but it’s important to remember that these expenses are not unlimited. Truck drivers and owner-operators should track their per diem expenses carefully to ensure that they do not exceed their reimbursement limit when they filed their income tax as self-employed.

The IRS Publication 463 “Travel, Entertainment, Gift, and Car Expenses” allows for a standard meal and incidental expense deduction for those in the industry.

You can save all receipts for meals and incidental expenses and deduct 80% of those at tax time. Or you can take the IRS standard deduction. The 2022 trucker per diem rate increased to $69 from $66 for any locality of travel in the continental United States.

The IRS has established specific criteria for transportation workers to claim the standard meal and incidental expense deduction on their taxes:

You must be employed in the transportation industry, and your job must keep you away from home regularly – long enough for you to sleep away from home. Your job must directly involve moving goods or people by truck, train, bus, ship, airplane or barge.

Other advice

Please don’t forget the biggest rule. You must have a tax home. To qualify for a tax home, you are required to incur expenses to maintain the home while on the road.

There are still many tax-deductible expenses that may apply to your situation that is not covered here.

That’s why we always recommend that you hire a professional tax and bookkeeping service that knows trucking, such as TruckerTaxTools.com. Consult with us on what qualifies as ordinary and necessary business deductions for your trucking company.

If you decide to do it yourself, be sure to set up bookkeeping procedures and talk with your tax professional about applicable deductions. LL

Read more Trucking and Taxes here.