Most people think about taxes in April, but as an owner-operator, you should be thinking about your taxes every month.
Your tax obligations include federal and state income taxes. As an owner-operator, you’ll be required to pay estimated taxes each quarter, and you are responsible for setting aside funds for taxes. “We see almost every day a new owner-operator who hasn’t set up automatic withholding, and all of a sudden at tax time they owe [thousands], and they don’t have it,” says Dennis Bridges, a CPA and tax preparer.
You’re also responsible for self-employment tax based on net earnings. If you have a second truck and employ a driver, you’re responsible for employee payroll taxes for federal and the state where you’re based, says Perry Wiseman, owner of Truckers Accounting Service.
Using Form 2290, you must pay the annual Heavy Road Use Tax. The $550 fee covers trucks weighing more than 55,000 pounds and is due by Aug. 1 for the July 1-June 30 period.
You also face fuel and mileage taxes under the International Fuel Tax Agreement (IFTA). If you’re leased to a carrier, the company might handle the payments.
Especially important are expenses you incur running your business. If it’s work related, chances are it’s deductible according to the Internal Revenue Service.
“We tell our clients to supply us with everything except restaurant and grocery store receipts,” says David Blair, owner of Blair Tax Consulting. “Everything they do on the road is deductible.”
Keep every receipt or bill for tolls, cell phone use, showers, truck supplies and so on. If the receipt doesn’t specify the expense, write the details on the receipt. If you don’t get a receipt, write it down and note the date and place it in a notebook that you keep for the year. Keep your settlement statements and handwritten logbooks, not only for current taxes but for potential IRS audits.
Blair says the IRS wants to see expense categories rather than itemized deduction. He organizes his owner-operator client expenses into three categories: Truck expenses, such as fuel, maintenance and insurance; office supplies, such as cell phone bills and computer; and truck equipment, such as tools and work gloves.
There are some expense exceptions. Clothing generally isn’t deductible unless you have your name and company name applied to your cap or shirts or if you need steel-toed boots to load and unload your flat bed or if you’re a Florida trucker who needs long-johns to run in the north in winter. Food and motel expenses are covered under a per diem for transportation workers, which is $59 a day and 80 percent deductible.
The IRS “audited a woman driver who had about $10,000 in per diem,” Wiseman says. “The IRS asked for [proof]. She didn’t keep her logbooks, and it disallowed the deduction. The IRS can audit back three years. Typically, I tell people to keep them for five years.”
You’ll also want to keep track of expenses back home. If you or your spouse makes work-related trips such as driving to a repair shop for tires, the mileage is deductible, Bridges says. If you maintain a home office, its expenses, supplies and related costs, such as a computer and printer, are deductible.
Bridges advises using an accounting professional who knows the trucking industry. Contact that individual when you’re planning a major business transaction like disposing of your truck. “If you’re selling it outright, your proceeds are going to be taxable,” he says. “If you traded it in on another tractor, there’s no taxable event, and you avoid a taxable gain.”
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