Trucker Taxes- FAQs
Q: Can I use my e-log records to count the days for Per Diem?
A: You can if you have the full year of e-log records. Contact your carrier every 3-4 months and ask for a copy of your e-logs. Many carriers delete e-logs every six month. Do not wait until the end of the year to ask for a copy of the e-logs.
Q: What tax forms do I need to complete for a contract laborer, (for example an employed team driver)?
A: If they are an employee, you should be paying them regularly through payroll and issuing them a W-2 at the end of the year. If they are an independent contractor, you would issue them a 1099-NEC.
Be really careful to understand the difference and what constitutes an employer-employee relationship. Check out the IRS’ site regarding this topic as a start and make sure you understand the 21-point test (Behavioral Control, Financial Control and Type of Relationship)
Q: Is fuel tax deductible for truck drivers?
A: Yes, fuel tax is a part of the cost of fuel, so it is deductible as an outgoing owner-operator fuel expense. For every gallon of diesel fuel purchased at the pump, a Federal Use Tax of 24.3 cents is collected. The tax only applies when the fuel is used in a taxable manner which means used as fuel to propel the vehicle. If your company uses fuel from the same tank for both propulsion and non-propulsion motors, you must be able to distinguish between the two. If you cannot legitimately quantify the amount of fuel used in all separate non-propulsion motors, you won’t be able to claim the credit. For large quantities purchased, credits can be claimed quarterly on Form 720. For diesel fuel that was purchased at the pump and was not used to propel the vehicle, such as in powering a reefer unit, the IRS allows a deduction for the tax paid on the company’s annual income tax filing.
Your records for this credit should support the number of gallons used, the dates the fuel was purchased, the number of gallons used for each purpose (propulsion and non-propulsion motors) and the names and addresses of suppliers.
Q: Are there any hiring incentives in the trucking industry?
A: We all know that finding good drivers, dispatchers, and safety directors is a constant challenge for trucking and transportation companies. What you may not realize is that when your company hires people from targeted categories and employs them for at least 120 hours, you maybe be able to claim a valuable Work Opportunity Tax Credit (WOTC) reduces your federal tax liability by up to $9,600 per person hired — and lets you use the credit to offset the alternative minimum tax (AMT).
Q: How much should I set-aside for business taxes?
A: It is recommended to set aside 25-28% of your weekly net income for quarterly taxes. We highly suggest that you make weekly or at least month estimated payments at IRS’ site https://www.irs.gov/payments. We have seen situations where drivers have to dig into the estimated payment funds for a major repair. This sets up a vicious cycle with owner/operator either not filing or not paying taxes. While the 25-28% is an estimate, the best way to calculate your true estimated payment requirement is to maintain an accounting system and monitor your net income year to date.
Q: I did not pay my quarterly tax estimates this year. What is going to happen?
A: The IRS will charge underpayment penalties and interest for the taxes not paid. At LTRS, our tax department will calculate that charge and include the penalties and interest on your year-end tax return.
Q: How quickly can I write-off the cost of the truck and trailer?
A: The current tax code provides several options for writing off the cost of a vehicle, including immediate expensing of up to $1 Million (post Dec. 31, 2017) during the year the property is put into service; first-year depreciation equal to 50% of the vehicle’s cost; normal deprecation; or a combination of all three. A taxpayer may elect to expense the cost of any Section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. For taxable years beginning after 2018, these amounts of $1 million and $2.5 million will be adjusted for inflation. These options allow owner-operators to pick almost any amount of write-off to best suit their particular circumstances. For normal depreciation, the IRS allows a recovery period of 3 years for over-the-road tractor units and of 5 years for trailers, trailer-mounted containers and heavy-duty trucks (13,000 pounds or more).
Q: Can I write-off any industry related subscription and association dues?
A: Owner-operators can usually deduct the trucking-industry and business-related subscriptions, and association dues.
Q: Can I claim the home office deduction?
A: It is possible for an owner-operator to qualify for a home office deduction; however, you need to meet two tests:
- The home office must be used regularly and exclusively for the business, and;
- The home office must be your principal place of business.
If you conduct business outside of your home such as being an over-the-road trucker but use an office space when your home to conduct business calls, organize receipts, and overall business functions then it’s possible to qualify for a home office deduction. There has been conflicting information about what qualifies for a home office deduction but if you can prove the office is used exclusively for business then you should be entitled to the deduction. The IRS may challenge the validity of the deduction for a trucker since your truck is considered your primary place of business. It will be important that you document the business that is conducted in your home office.
Q: Is clothing tax deductible?
A: To claim a deduction for buying clothes, the clothes must be a safety item or mandatory for your occupation (hard hat, steel toe boots, fire retardant outerwear or perhaps safety coveralls) and unsuitable for everyday wear. The Internal Revenue Service allows you to deduct the cost of clothing for work only if it would not ordinarily be worn outside of work. Since most people would wear logo clothing only on the job, the shirts, hats or other items you provide for employees are deductible.
Q: I purchased an Auxiliary Power Unit this year. Can I receive a tax credit for this purchase?
A: Yes. Send your tax preparer the receipt or the Bill of Sale for the APU. Also, write down the hours it was used, or gallons of fuel used so we can provide the tax credit.
Q: Are truck dog expenses deductible?
A: Yes, if a dog is acting as a security for the truck it is considered a guard dog and its expenses (food, veterinary bills) can be deducted from your taxes.
Q: I cannot get my taxes done on time. What should I do?
A: Let LTRS know as soon as possible. We will file a one-time 6-month extension for you. Remember, this is an extension to file, not an extension to pay. If you think that you will owe with the filing of your return, you should pay 90% of the expected liability when filing your extension.
Q: Will I receive a tax refund?
A: This is very dependent on your individual situation, however, it’s not likely if you are an owner-operator. LTRS works hard to reduce your taxes as low as legally possible. Remember, if you are getting a refund, you have given the government an interest free loan.
Q: If I pay subcontractors, when are they required to receive a 1099 NEC?
A: Payments of $600 or more to subcontractors must be reported to the government by filing Form 1099-NEC. This form requires the subcontractor’s name, address, and tax ID number as well as the payment amount. There are penalties for failing to file this form, for filing it late and for filing it without the tax ID number. All these penalties can be avoided by (1) having contractors complete Form W-9 before you pay them and (2) filing the 1099-MISC forms by January 31 each year.
Q. Do I need to file a separate tax return for owner-operator earnings and company driver earnings?
A: No. As a sole proprietor, you will file one return, Form 1040. The 1040 will contain a Schedule C, listing business earnings and expenses. Note: When the net profit on your Schedule C reaches approximately $52,000, you are going to want to consider filing an entity return, instead of continuing to receive your income under your social security number. Give us a call at 855-829-5877 to get that entity set up.
Per Diem Questions
Q: How does the Per Diem tax deduction work?
A: Per Diem is a tax deduction for meals and incidental expenses on the days you are working away from home. The current rate is 80% of $66 per full day, and ¾ of this amount for partial days. Partial days are the day you leave home and the day you return. Full days are any day you need to stop driving due to the hours-of-service rules or unable to drive due to on the road repairs. Visiting family or friends for a few days do not count as Per Diem days. If you are using a motel/hotel while on the road, Per Diem is still deductible, but not during home time.
Read More: Trucker Per Diem Tax Break
Other Miscellaneous Questions
Q: If I sold a home this year, is the profit taxed?
A: It depends on how long you owned and lived in the home before the sale and how much profit you made. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free. If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you "exclude" an amount from your taxable income. (If you sold for a loss, though, you cannot take a deduction for that loss.)
Q: If I rented out a home this year, do I have to claim it on my taxes?
A: Yes, you will need to fill out a Schedule E form.
Q: What is the penalty for not having health insurance?
A: The insurance mandate has been removed. As of 2019, there is no longer a penalty for not having health insurance.
If you have any more questions, feel free to give us a call at 855-829-5877or visit our website at http://www.legacytaxresolutionservices.com.