The sweeping tax overhaul cleared by Congress on Wednesday, now headed to President Trump’s desk to sign into law, institutes changes to the deductions that drivers and owner-operators can take on their annual tax filings, such as the daily $63 deduction allowable for meal expenses on the road. (Truckers can claim 80 percent of that amount as a deduction.)
Overdrive reported Wednesday, based on interviews with three trucking tax experts, that the $63 per diem would likely go away under the tax reform act. However, those sources said they were still reviewing the bill’s details and hoped to speak more definitively in the coming weeks about how the bill will ultimately impact truckers’ tax filings. As noted in Overdrive’s initial report Wednesday on the tax reform bill, owner-operators will still be able to deduct meal expenses as business expenses on their Schedule C.
Language in the bill, however, seems to indicate that the per diem deduction will be retained after the tax overhaul is implemented. Whether there’s a change to the per diem or not may mostly be a moot point, since the bill doubles the standard deduction allotted to all income tax filers, including truckers. The new deduction protocol for income tax filings may ultimately hinge on a numbers game, and owner-operators and company drivers will need to determine the best way to maximize their deductions.
For married couples filing jointly, the soon-to-be-law bumps the standard deduction to $24,000, from the previous $12,000 — a threshold that might be hard to meet for company drivers by claiming itemized deductions, such as the per diem deduction. The tax bill, as with current law, appears to continue to allow drivers to deduct 80 percent of the $63 per diem from their taxable income.
For instance, a company driver working six days a week every week of the year would be able to claim a meals deduction of $15,725 — well below the $24,000 standard deduction granted to married couples, though drivers could have other deductions that could help push them closer to the $24,000 break-even point. The $15,725 amount is, however, greater than the standard $12,000 deduction granted to single filers under the new law. But again, that’s for a driver working away from home six days a week, every week of the year. For single-filer drivers in such a scenario, it would make sense for them to take the per diem.
Dennis Bridges, a CPA in Atlanta and head of the eTruckerTax firm, provided analysis of two of his clients’ 2017 filings as an example of how the Tax Cuts and Jobs Act will impact drivers’ filings. One driver paid more, despite earning less, while the driver in the other example paid a few hundred dollars less.
The driver who would now pay more in income tax had W-2 wages of about $59,000 and took itemized deductions in 2017 totaling $23,000, “comprised of roughly $7,500 of charitable giving and about $15,500 of 2016 work-related expenses — mostly per diem, since he’s a company driver,” according to Bridges’ notes. Combining those deductions with the $8,100 personal exemption for he and his wife (the personal exemption is being eliminated by the new bill; it formerly granted a $4,050 deduction per person), the driver’s taxable income was $28,000, and he and his spouse paid federal income tax of $3,300 for the year.
Under the new tax code implemented by the reform bill, they would pay $1,000 more on those same wages, Bridges says. Instead of taking itemized deductions, they would take the new, larger $24,000 standard deduction (compared to the $23,000 in itemized deductions taken in 2017) and would lose the $8,100 personal-exemption deduction. Their taxable wages would then be $35,000, and their tax bill for the year would be $4,300.
The driver in the other example, also a company driver filing jointly with a spouse, earned $82,500 in W-2 wages. He took the standard $12,600 deduction and the $8,100 personal exemption-deduction, and his tax bill for 2017 was $8,400 on the $62,000 in taxable income.
Under the new law, he’ll be able to take the $24,000 deduction, but no personal exemption. His taxable income would then be $58,500, and his tax bill would be $7,800.
Overdrive will explore more on the tax reform legislation in the coming weeks.