Understanding how you and your trucking business are taxed is one of the biggest challenges for any owner-operator and truck driver. Using good planning and record-keeping all year round, though, can help you avoid any headaches in April. This guide will shed some light on truck driver taxes, deductions, and more.
How Much Tax Does a Truck Driver Pay?
Being an owner-operator means that you need to pay taxes yourself. This can be a major hurdle for those that were company employees before as they are now called to calculate and pay taxes that were once automatically withdrawn from their paycheck and then pay them to Federal and State agencies themselves. This involves making quarterly estimated tax payments that often range between 20-30% of their net income (the one earned per quarter). Doing so enables you to minimize any tax bill surprises while also avoiding tax penalties before Tax Day (usually in mid-April). In a nutshell, truck drivers need to pay three major types of taxes:
The first two are calculated on your tax return. If you are an employee, these taxes are being withheld from your check. Owner-operators will have to estimate and pay these taxes themselves. You can refer to >Tax-brackets.org to check cross-state tax brackets.
Now, when it comes to estimated tax payments, you will need to make quarterly payments if you owe more than $1,000 in taxes. This sum is, of course, the final amount you get after subtracting withholding and credits.
Note that owner-operators can show deductions or even file a tax return at the end of the year. So, estimating your business profit will show you (1) the required estimated tax payments you need to make, and (2) the due taxes when you file Form 1040. Your net profit is calculated with this equation:
Net profit = Gross pay (what’s on your 1099-MISC) minus allowable business-related expenses.
If you don’t file a tax return or show deductions, the IRS will determine what you owe in taxes without taking into account any potential deductions. This instantly means that the required tax amount will be significantly higher than if you had shown deductions or filed a tax return.
What Expenses Can a Truck Driver Write Off?
Let’s begin with Per Diem expenses, which refers to the assumed tax-deductible sum you spend on beverages, meals, and tips when on an overnight (always business-related) trip away from home. This one is deductible on IRS Schedule C for owner-operators and lowers your income and self-employment taxes owed on the return directly. Per Diem expenses are used by the majority of over-the-road truckers that are away from their home base most of the time as it saves them more money than gathering meal receipts. The only prerequisite is that you spend the night away from home.
Note, though, that you won’t be able to deduct your total Per Diem dollar for dollar. So, ensure you are familiar with the IRS regulations, though, as the laws and amounts change almost annually. According to the current rules, you can take 80% of the Per Diem expenses as a tax deduction.
Other accepted deductions are those referred to as ordinary and necessary business expenses. In general, these include:
- Truck maintenance and supplies – You might be able to deduct these costs if you pay for them out of your own pocket (i.e., cleaning supplies, washer fluids, new tires, and oil changes). Note that if your employer reimburses you, you won’t be able to double-dip (hence, deduct these expenses).
- Sleeper berth – Many truck drivers are not aware that they can deduct items from using a sleeper berth. These include first aid supplies, mini refrigerator, alarm clock, cab curtains, and bedding.
- Electronic devices – You can deduct costs related to your cell phone from your tax return if you use it exclusively for work. CB radios and GPS units are also deductible costs.
- Travel expenses – Besides overnight stay-associated expenses (including per diem and hotel rooms), you may also consider the standard meal allowance. This may vary per location, but the amount is higher for truckers due to the Hours of Service regulations. For the current amounts, check out IRS Publication 1542.
- Professional association or union fees – Feel free to deduct fees you pay at a trucking industry organization or union from your taxable income.
- Uniforms – If you need to wear a uniform and it is not paid for by your employer, then you can deduct the related costs. These include goggles, protective gloves, boots, and other specialized work gear. Also, when away from home, you may deduct cleaning expenses for your clothing.
- Office supplies – These are deductible only if you use office supplies to keep track of your day or route and include from staples and maps to writing supplies, clipboards, and logbooks.
- Depreciation – You can deduct specific property as expense (i.e., your truck(s)) if you use that property in service, per Section 179. Always consult a tax professional before determining how to deduct these expenses if you are an owner-operator, though. Deciding how to use the leveraged deduction when filing your taxes can be challenging. The standard (aka straight-line) depreciation for a new Class 8 truck either uses the accelerated depreciation or the multi-year formula.
- Truck lease – The entire leasing amount of your monthly payments can be deducted. Note that you will probably see a higher deduction in the first 48 months due to depreciation. After three years or so, the truck purchaser will have little depreciation, which means that you will be able to see the reduced tax benefit. For the owner-operator who buys the truck, the tax delay is the net effect. In this case, the tax is not eliminated by depreciation – it is paid in the following years.
- Other costs – These include expenses such as DOT physical exams, drug testing fees, driver license renewal fees, and sleep apnea costs.
Other Truck Driver Tax Write-Offs That You May Qualify For:
- Lifetime Learning and American Opportunity tax credits – If you, your child, or spouse are attending college, you may qualify for partial reimbursement of the fees and tuition you pay for college provided that you have not received any scholarship or grant.
- Child tax credit – You may claim up to $1,000 for every offspring that is below 17 as long as the child lives with you (at least most of the time), and you cover at least 50% of their living expenses.
- Child & dependent care – You may receive compensation for some of the costs tied to dependent or child care if you have children below 13 years of age. In the case of disabled spouses and offspring, though, the age limit does not apply (eligible regardless of age).
- Earned income tax credit – This is a refundable credit that is based on your income and covers low- and middle-income individuals and families. You could get $6,000 or more in reduced tax credit with this one.
What Tax Forms Should Truck Drivers Use?
Filing a Form 1099-MISC (Miscellaneous Income) is the responsibility of self-employed truck drivers. You need to report that income, along with any expenses, on the IRS Schedule C (Profit and Loss from Business). You will also have to report your self-employment taxes and report them on your form 1040 if your net earnings are at least $400.
You should have received a Form W-2 for your job if you are a truck driver/employee and none of your job-related costs are deductible. In detail, the forms you will need to file your taxes are as follows:
- Schedule C form – For statutory and self-employed drivers. It determines your business profit and loss.
- W2 – For agents or commission drivers. Your Statutory Driver box in your W2 may have been checked. This form is also received by company truck drivers with a report of income and wages of the driver.
- Form 1099 – To report miscellaneous income and applies to truck drivers working as independent contractors for a company.
- Form 1040 or 1040A – This reports your individual income tax return. It is the standard federal income tax form.
- Other forms for reporting your income if you are owner-operator – It depends on your records.
Tips for Filing Truck Driver Taxes
Here are some more details and tips for filing your taxes:
- Don’t throw away your receipts. Hold on to them for at least five years.
- Know the specifics related to your truck driver-associated deductions. Ask a tax professional to review your accounts if you need extra help, so you don’t over-claim or miss out on these deductions.
- Be diligent about record-keeping to avoid penalties.
- You can visit the IRS Publication 583 page for information about record keeping and kinds of records that you may not have been aware of that you need to keep.
- You may also find useful information at the >IRS Trucking Tax Center.
- Try to minimize your taxes contributing to a SEP, IRA, or 401(k) frequently, tracking personal vehicle miles, and benefiting from the available credits and deductions. Of course, getting assistance from a tax professional with experience helping truck drivers will help relieve some of the headaches and burdens.