It’s no secret that the trucking industry provides an opportunity to make good money, along with quality benefits and time spent at home. Despite this, being self-employed as an owner-operator truck driver also means you’ll have to learn how to successfully conquer the challenges of taxes. To ensure success as an owner-operator, it’s critical that you learn how to effectively manage your money by planning for taxes and keeping accurate records. You’d be surprised at the amount of money you’ll save when you do all these things. Use the following suggestions to help you prepare for tax filing season:
Keeping track of your costs is arguably the most important element when it comes to taxes. Learning where you can reduce spending is also helpful. ATBS is a great resource for this.
On December 20, 2017, the Tax Cuts and Jobs Act became a law that affects both individuals and businesses – including owner-operators. While nothing will change with per diem reporting, owner-operators can now deduct 20 percent of business profit before paying taxes, including sole proprietorship, LLC, S-Corp, and Partnerships.
A second aspect of planning ahead includes taking the time to prepare a budget. By having a system in place, you’ll find that keeping track of your expenses and incomes isn’t so hard after all.
Watch the Bennett and ATBS Road2Success Teleforum on Taxes for more great info.
Know Your Expenses and Deductions
True expenses can be determined by figuring out your minimum cost to operate. In order to avoid any mishaps, it’s a good idea to set aside 10 percent of your income for emergencies. Another solid piece of advice is to allow for both planned and unplanned maintenance. Oil changes are expected, but you never know when you might pop a tire on some unexpected debris.
Your tax deductions that result from being an owner-operator are defined as “ordinary and necessary” expenses. However, this doesn’t mean that anything useless or extravagant will be counted as a legitimate deduction. Deductible expenses include:
- Replacement parts
- Costs for maintenance
- Fees related to servicing, installation, and delivery
- Repairs (if you perform them yourself, you can only deduct for parts, but not for time)
While the cost to maintain your tractor trailer counts toward tax deductions, so do many of the costs associated with being an actual driver. One of the largest deductions for trucking employees include per diem for meals, which varies by state. Over-the-road drivers who are away from home for a certain number of days can claim standard meal deductions on his or her taxes. With the new tax law, owner-operator rates for 2018 are $63 per full day and $47.25 for a partial day within U.S. borders.
Other deductions directly related to you include:
- Office supplies and maintenance for an in-home work space that meets the requirements of the IRS as a designated area
- Shower facility costs and laundry services
- Work clothing and safety equipment
- Any supplies geared towards the business side of trucking
To avoid triggering an audit, you should make sure not to claim too much. The following list includes non-deductible expenses that should be left off:
- Reimbursed expenses
- Clothing that counts as everyday wear
- Home phone
- Interest on personal loans
- Personal vacations
- Student loan interest or principle
Keep Detailed Records
All it takes is a little bit of organization to accurately reflect what you spend versus take in when it comes time to do your taxes. Make your own worksheet that incorporates fixed costs. These are costs that remain the same from month-to-month such as truck payments, insurance costs, medical insurance, licenses, permits, and highway use taxes. Next, don’t forget to include variable costs that are subject to change. Some of these might be fuel costs, tools and supplies, repairs, parts, and cell phone costs.
Lastly, know your cost per mile. This can be the difference between success and failure. Keep track of your miles each month, and then divide your costs by your number of miles driven to get your CPM result. Determining this number is a good representation of how well you are doing.
Being an owner-operator obviously has its benefits when it comes to taxes and expenses, but it’s important to stay on top of your records. Aside from this, it’s probably a smart idea to work with a tax preparer who is knowledgeable about the industry in order to help with any changes to the law that could affect you.