Trucking & Taxes – October 2024

Whether you’re a trucker or involved in any other profession, taxes likely aren’t your favorite topic. That’s especially true when you’re running a profitable business and will owe taxes.

However, tax planning is the best way to be prepared and possibly reduce your tax burden.

“There is nothing wrong with a strategy to avoid the payment of taxes,” the late Supreme Court Justice William Rehnquist said. “The Internal Revenue Code doesn’t prevent that.”

Tax brackets

We start planning by understanding your tax bracket. What bracket are you in? Look at last year’s taxes. We provide a summary of your taxes and show you not only your bracket but also your effective tax rates.

The United States has a progressive tax system, meaning that taxpayers with higher incomes are subject to higher rates. There are seven tax brackets: 10/%, 12%, 24%, 32%, 35% and 37%.

These rates are applied to your taxable income, meaning your total income less adjustments and deductions (standard or itemized). Then the taxable income is taxed at the rate for each bracket range.

Here is a good example: As a single-filer making $40,000 in taxable income, you are in the 12% bracket for 2024. You will actually pay only 10% on the first $11,600 and 12% on the balance.

As a self-employed business owner, you also have self-employment taxes that are paid on the net profit of the business. Self-employment taxes are one of the biggest expenses of your business. They’re a combination of Social Security (12.4%) and Medicare (2.9%) for a total of 15.3%.

Tax planning is finding ways to reduce the total tax burden of both income and self-employment taxes.

Reducing taxes

The advantage of being self-employed is that you deduct every business expense.

Here are a few tax tips for self-employed and owner-operator truckers that will make tax time less painful:

Bookkeeping: Whether doing it yourself or hiring TruckerTaxTools.com, keeping track of all business income and expenses monthly lets you know how your business is doing.Also, it allows you to make sure that you’re capturing all business-related expenses. As I say at the Truck To Success seminar by the OOIDA Foundation, “You lose every time you spend after-tax dollars that could have been pre-tax dollars.”

Time your business expenses: There’s typically a surge in business equipment sales at the end of the year, because many business owners try to time their purchases of large equipment to get the tax deduction. Business expenditures are counted if made in the year you purchase them, even if you use a credit card or other deferred payment plan and don’t pay for them until the following year. If you put the asset into service before year-end, you can start depreciating it. You may even be able to take bonus depreciation or Section 179 deduction to expense the entire cost of the asset in one year. However, don’t spend just to save taxes. Always have a business purpose.

Medical insurance: If you have health insurance, you can qualify to deduct health insurance premiums you bought for yourself, spouse and dependents. You can include long-term care insurance as well.

Pay your children: If you have children, you can deduct the amounts you pay them to work in the business. Your children usually pay less in taxes than you would because they are in a lower tax bracket. When you hire your children for your business and they are under 18, you don’t need to pay or withhold FICA tax or federal unemployment tax. You can deduct the payments made to your children. However, the amount you’re paying them needs to be reasonable, and they must actually be doing the work.

Home office: If you have a qualified home office for your trucking business, you can deduct office supplies and some of your otherwise nondeductible expenses, such as a portion of your home insurance, utilities, HOA fees and rent or mortgage payment. The other option the IRS allows is for you to take the simplified home-office deduction, where you deduct a flat rate per square foot. This method allows you to take advantage of small-business tax perks without the stress of lengthy calculations and record-keeping. This simplified option does not affect whether you can claim a home-office deduction (you still need to meet all guidelines). It only simplifies the calculation and recordkeeping requirements.

Make charitable contributions deductible: Under normal circumstances, you can’t deduct charitable contributions on your Schedule C. If the donation can be considered a business expense by giving money to charities in exchange for something in return, such as advertising for your business, you will have a greater tax benefit than itemized charitable donation deduction.

Retirement plans: As a self-employed small-business owner, you have the option to fund retirement plans. Contributions to standard IRAs are limited, however. You can contribute significantly more to a retirement account by using a SEP IRA or Solo 401(k).

Business mileage on personal vehicle: You can use a standard mileage deduction or actual expenses for fuel, oil and repairs. Your records must include miles driven, business purpose and date. Make sure you count every business trip to the grocery store, parts store, post office and business meeting. All miles add up.

Rent your home to your trucking business: If you’re the homeowner as well as the business owner, then renting your home to your business means you save twice in taxes. First, you write off the business event as a business expense on your business tax return. Second, you receive the tax-free rental income as an individual. As with all deductions, there are several rules you’ll need to follow to keep this transaction legal. Here are a few:

You must use the home for legitimate business purposes and not solely for entertainment.
You must charge a reasonable amount to rent the space.
Your business must be an S-corporation, C-corporation or partnership to qualify for this tax benefit. If you are a sole proprietor or own a single-member LLC, then you don’t qualify.
You can’t use the home-office deduction and rent that same home to your business in order to produce tax-free income.

Don’t just blindly do tax planning, consult your tax professional or call us at TruckerTaxTools.com for guidance and planning. LL