Taxes might seem different when you’re an owner operator or an independent contractor. Truck driver tax deductions could be a hectic task, if you are handling it for the first time. When you work for a trucking company, taxes are deducted from your salary automatically. In this blog, we will go through some of the tax tips for owner operators.
However, if you run a trucking company of your own, you must pay taxes yourself and on time. Lease operators can deduct several work-related expenses from their taxes, which makes planning and tracking day-to-day expenses a major part of each haul. Are you all set to file your taxes this year? Know what to expect and save yourself from stressing out with these taxes.
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Below listed are some tax tips for owner operators:
1. Stay on top of your Quarterly Taxes:
As an owner operator, there are a lot of things you need to take care of, for instance, loads, truck leases & maintenance and renewing your Class A CDL. And, majorly, you’ll need to pay your taxes!
Company drivers have taxes automatically deducted from their salaries. Self-employed drivers do not. If you’re an owner-operator, you’re required to pay taxes every quarter. The self-employment tax rate is 15.3%, split into 12.4% for Social Security and 2.9% for Medicare. The 1040-ES Form provided by the IRS is used to figure estimated taxes for individuals, sole proprietors and partners. Corporations use Form 1120-W.
How much in taxes do owner-operators pay? The answer solely depends on how much you make each year. Usually, owner operators should keep aside 25% to 30% of their weekly net income to pay quarterly taxes. This way, you have money saved aside for taxes, and you can handle surprise tax bills down the road.
Not paying taxes on time each quarter results in penalties. This will cost you underpayment fees and interest on unpaid taxes.
2. Keep records of all expenses
Preparation of truck driver taxes for owner drivers generally revolves around tracking expenses. The most ideal way to deal with this during a tax season is to become an expert in keeping records of every expense. Owner operators can note down many of their work-related expenses, including food, fuel and lodging, if they can show evidence of purchase.
It can be challenging to track every expense along the way. Sometimes, it’s a habit to say “no receipt” for minor items like a $5 snack. However, these little purchases can add up and result in a bigger one later. You need the receipts to make note of it.
Collect a receipt every time you make a purchase. Then, sort and segregate your receipts by food, fuel and maintenance at the end of each haul. Safeguard your organized receipts in a file cabinet or digitize them when you return home.
Records of your expenses help in the deductions you claim on your tax return. You’ll pass the receipts onto your tax professional when you do your truck driver taxes. If you are audited, the IRS will ask you for these receipts.
3. Know what qualifies as Truck Driver Tax Deductions
Owner-operators can make note of and maintain certain business expenses. The per diem deduction allows you to note down “ordinary and necessary” purchases while traveling.
According to IRS Publication 463, owner operator truck drivers can claim tax deductions each day they are away from home for necessities like meals and other incidental expenses. But, they can only claim a partial day’s allowance instead of a full one on the days they depart and arrive.
Truck Driver Tax Deductions
As an owner operator, you must understand the significance of maintaining your finances. Licensing fees, insurance, and fuel costs can add up more quickly than you expect. But, some of these expenses are tax-deductible. Truck driver tax deductions are an excellent tool for owner operators to lessen the tax burden and keep more money in their safe. When you are preparing to file your taxes, take advantage of these tax deductions.
As an owner operator, you can claim a per diem deduction for food and other incidental costs while on the road for longer than a usual workday.
In 2023, the per diem rate in the United States for owner operators will be $69 per day for every day the driver is away from home. You can deduct 80% of this or $55.20/day.
4. Explore Potential Tax Credit
Before you file, you should check whether you are eligible for tax credits or not. The COVID-19 pandemic made certain credits available from the year 2021. Be sure to include information about stimulus checks, donations and more when you prepare items for your tax return.
|The American Rescue Plan Act
|It gave individuals and their family members a $1,400 stimulus check. If you haven’t received this check yet or you received a lesser amount, you can claim the amount as a credit.
|You can claim this on your taxes. If you gave to any charities or nonprofits organizations, be sure to include those donations when filing. You need a tax professional to see the records or receipts for those donations.
|It gave tax credits to self-employed individuals who missed work because of COVID. Those who missed work because they were caring for someone else with COVID at that time could claim up to 50 days.
These are 3 common types of Tax Credit
5. Work with a Tax Professional
Taxes can be confusing as well as time-consuming, especially if this is your first time filing as an owner operator. Never miss a deduction that could save you money or make a mistake that provokes an IRS audit. The most ideal way to avoid all these is to hire a professional to prepare your tax return unless you feel confident doing it yourself.
Working with a trusted accountant or tax preparer helps you in ensuring that your truck driver taxes return is completed without errors. As an owner operator, you need to pay quarterly taxes and keep organized records of your expenses throughout the year. When the time to pay taxes comes closer, you’ll have everything you need at the ready.
A Quick Tips for IFTA Compliance
The International Fuel Tax Agreement (IFTA) is a scheme designed for interstate carriers in the United States and Canada. Under IFTA, carriers can work with a single state or province to file and pay fuel taxes to all other member jurisdictions in which they operate.
Staying in compliance with IFTA involves some thoroughness, and the following tips will help you stay on top of the requirements in your day-to-day operations.
- Know your Qualified Vehicles
- Track all miles
- Maintain proper records
- Mileage Records
- Fuel Receipts
- Hang on to Unused IFTA decals
- Keep Records Long Enough
You can also consider giving this a try on how to calculate your Form 2290 Tax.
In conclusion, there might be other ways that would help you save some money while filing your taxes. But, the essential truck driver tax deductions are covered in this blog. Being an owner operator or any business owner isn’t a simple task when it comes to handling a business and managing all the taxes all by your own. Seeking assistance is always useful in such situations. Therefore, this blog can be referred to as a source to get basic insights into it.
I'm a HR at OpenFR8 and a passionate blogger. Apart from my day job as HR, reading and writing books/blogs are two of my absolute favorite things to do. I like taking on new challenges and most importantly, I believe in bringing efficiency towards everything I do. I love expressing my thoughts and visions through the medium of words in the form of blogs or articles or books. Till this date, I've successfully published three short-novels on my own and will continue to do so.