Tax bill likely sunsets meal per diem for drivers, cuts rates across the board

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Updated Dec 20, 2017
The Tax Cuts and Jobs Act eliminates certain deductions allowed to truckers and owner-operators, but attempts to make up for the deductions by doubling the standard deduction for all filers and cutting tax rates.The Tax Cuts and Jobs Act eliminates certain deductions allowed to truckers and owner-operators, but attempts to make up for the deductions by doubling the standard deduction for all filers and cutting tax rates.

The tax reform bill likely to be signed into law by President Trump this week or next is expected to be the end of the daily $63 per diem deduction allotted to truck drivers for on-road meal expenses, says ATBS president and CEO Todd Amen. However, he and his firm are still reviewing the details of the bill, he says, and expect to be able to speak more authoritatively in the new year about the changes it institutes.

Owner-operators will still be able to deduct meal expenses on their annual Schedule C tax form, due at the time of their annual filing, he says.

The axing of the per diem by Congress’ overhaul of the U.S. tax system, as with changes in other itemized deductions, is intended to be offset by a big bump in the standard deduction granted to all filers. That will increase to $24,000 from the previous $12,000 for married couples filing jointly.

“There is no need to itemize” the per diem deductions after the bump, says Amen, “because they’d still probably be below the standard deduction.” The standard deduction for single filers will jump from $6,300 to $12,000. What’s more, the child tax credit – an amount subtracted directly from parents’ tax bills, not their taxable income — will be doubled to $2,000 per child. However, the bill eliminates the $4,050 personal exemption afforded by current tax law.

The Tax Cuts and Jobs Act, which passed the Senate late Tuesday and should be passed by the House on Wednesday, slashes income tax rates across the board for individuals and cuts the corporate tax rate from 35 percent to 21 percent. (Update: The bill has passed both chambers of Congress and has been sent to President Trump to sign.)

Dennis Bridges, a CPA and head of the Atlanta-based eTruckerTax firm, said the most immediate impact will be to company drivers, who’ll see their payroll-deducted taxes lowered as early as February, after new withholding limits take effect.

The bill in Congress will  establish a new 12 percent tax rate for single filers earning between $9,525 and $38,700 a year. Income earned between $38,700 and $82,500 for single filers will be taxed at 22 percent. Income at $9,525 and less will be taxed at a 10 percent rate. These rates replace the 10 percent, 15 percent and 25 percent brackets currently in effect.

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For those filing jointly with a spouse, the new 12 percent bracket covers income between $19,050 and $77,400, with income earned below $19,050 taxed at the 10 percent rate. For joint filers, income between $77,400 and $165,000 will be taxed at a 22 percent rate.

The bill also cuts tax rates for higher earners, instituting new rates of 24 percent, 32 percent, 35 percent and 37 percent, down from the previous 28 percent, 33 percent, 35 percent and 39.6 percent rates under current law.

No Obamacare penalty

The GOP bill also eliminates the tax penalty instituted by the Affordable Care Act for not carrying health insurance. Many owner-operators have resisted getting coverage and have been subject to paying hundreds of dollars each in penalties that increased every year since Obamacare took effect. However, this change does not take effect until the 2019 filing year (due April 2020).

Thinking ahead to 2018 filing

Traditional tax planning has been to accelerate expenses ahead of Jan. 1 and delay revenue beyond Jan. 1. That strategy will be worth even more this year because of the lower tax rates.

Given that tax rates are dropping next year, Bridges says it would be wise of owner-operators — and all businesses — to defer any income they can until after the new year rolls around. Checks deposited in January will be taxed at lower rates than checks deposited before year’s end.

Operators also would be wise to take on any necessary expenses before the end of the year, such as maintenance/repair work or buying business supplies, as a means to maximize their deductions for the 2017 filing year, given that 2017’s rates will be higher than 2018’s.

“You’re going to get much more benefit from [those expenses this year] than if you wait even until January,” says Bridges. “So if somebody needs a new transmission or a new set of tires, they’re going to be significantly better off to get those now and take the deduction for 2017.”

Amen says owner-operators should also pay before year’s end any state and local taxes due for the fourth quarter of 2017, as the tax reform bill removes those deductions, and paying them in January will restrict operators from deducting them from their taxable income for this year and next year.

Fleets win big in new corporate rate

Carriers will likely see some of the larger benefits offered by the bill in Congress, due to the new 21 percent corporate tax rate.

“Trucking companies will see a huge benefit at year’s end when they file their 2018 tax returns,” says Bridges. “One of the things [lawmakers] hope companies use that for is as a growth mechanism and to increase compensation to their people.”

Ultimately, though, Bridges says the bill “offers a little something for everybody.”

“Whether they’re a driver, whether they’re an owner-operator with one or two trucks — or 50 trucks or 300 trucks — it’s going to affect almost everyone.”

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